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Most people are confused about the mechanics of leasing a car so they tend to believe the myths they hear. As a result, they decide to purchase their cars without even looking into the many advantages of the leasing option. If only they take the time to get their facts straight and understand how car leasing goes, they can enjoy its numerous advantages over outright purchase. If you're shopping for a car, take a moment to study closely the leasing and purchase options so you can be assured of making the smarter choice. Here are the three common myths on car leasing that you should be aware of:

 

Myth #1: You won't get any tax breaks if you lease a car.

 

While only businesses can deduct monthly lease payments as expense items, individuals do get to enjoy a tax break also. This comes in the form of sales taxes. In most states, individuals are required to pay taxes only on their lease payments whereas if you buy a car, you pay taxes on the full amount of the purchase price. People buying a new car generally secure a loan with a term of five to seven years. In comparison, a lease contract is good for only two to four years. Thus, when you lease, you get to save about half of the taxes you would have paid had you bought the car. Then again, some states like Arkansas, Maryland, Minnesota, Texas, and Virginia require tax payment on the full value of a leased car.

Myth #2: It is more expensive to lease a car than buy one.

Monthly car lease payments are actually lower by about $200 than the monthly installments on car loans. Then, at the end of the lease period, you have the option to buy the car or return it to the leasing company. When you turn in the car, you may have to pay the return fee, which is almost equal to your lease payment and mileage charges if you drove more than the mileage allowed in your lease contract.

Even if you have to pay $1,000 when you return the car after driving it for three years, you're still at an advantage. Just think of the savings you made by leasing over the same period compared to the loan-purchase option. For example, if your monthly lease is lower by a mere $100 than the installment payment, your total savings over the lease period would amount to $3,600. On the other hand, leasing becomes more expensive than purchasing a car if your cost comparison is based on the assumption that you will keep the car longer than the term of the loan assuming you got financing to buy that car.

Myth #3: You can't negotiate the price of a leased car.

 

It's a mistake to think you cannot negotiate for a better deal when leasing a car. It's just a matter of knowing and understanding the terms of the car lease. You need to learn about three important terms where you can negotiate: capitalized cost, residual value, and money factor. Capitalized cost refers to the actual price of the vehicle. The residual value refers to how much the car will be worth at the end of the lease period. And finally, the money factor refers to the finance (interest) rate used in computing the lease payment.

When you go shopping for your car, you can always ask the dealer to give you the lowest capitalized cost. You should try to haggle as hard as you would if you were buying the car. The residual value is also negotiable. A lower residual value can mean higher monthly payments and vice versa. Try to do the math before making your choice. Be sure to ask for the money factor a dealer uses because the lower the number is, the better it is for you.

Another aspect that you may negotiate is the mileage limit. While your monthly payment may be a little higher for a bigger mileage allowance, you could still realize some savings if you expect to do a lot of driving and exceed the allowable limit.