To take advantage of a tax credit loophole on EVs, some car makers want to do more leasing:
Hyundai, Kia and Ford say they will look to increase leasing on their EVs to lower the pricing and increase sales.
Source: Electric vehicles: Inflation Reduction Act tax credit loophole boosts leasing
The general model is that people borrow money to buy a car, and therefore, they compare lease payments to monthly payments on a loan.
A primary advantage for some is that they sign a 3- or 5-year lease agreement, and then 3 or 5 years later, can end it, and switch to a newer, shinier vehicle. For some people, having a newer, shinier, fancier car is a desired personal value.
But as the article notes, monthly lease payments can run $500 or more per month.
With leasing, you are renting a car for $500 or more per month rather than owning a car. If you drive too many miles, you will have to pay for the excess miles.
Except for those wanting to do frequent upgrades and not minding throwing away a bit of money, leasing doesn’t make sense for many:
- Never Ever Lease a Car – Why leasing a car is a bad idea (smartstartmoney.com)
- Leasing vs. Buying a New Car – Consumer Reports
- Why You Should Never Lease a Car | The CentsAble Shopping
- Repelled by high car prices, Americans are holding on to their vehicles longer than ever | AP News It is almost always less expensive to repair a vehicle and use it longer. Half of the liftetime energy used by a vehicle is typically used in manufacturing – it is better for the environment to maintain and continue driving many older vehicles.
If you purchase a car with a loan, you eventually pay off the loan or at least much of you – and your payments build equity that you can capture in a future re-sale. Generally, borrowing money to buy something that goes down in value is a bad financial move. It’s ok to buy a home with a loan because homes tend to rise in value over time. But cars go down in value the day they are driven off the dealer lot.
If you are paying cash for a car, you will likely have a better deal, financially, as you will not be throwing away money – and at the end of say, 3+ years, you could resell the vehicle for perhaps 60% or more of your purchase cost.
Leasing may be convenient, especially if you want access to a vehicle you cannot afford to buy – but it is not ag ood financial sense for most individuals to lease vehicles. Yet here we are – our tax law and EV makers create incentives to lease rather than buy – under the guise of a tax credit loophole.
(I do not favor tax credits for car purchases. Tax credits lead to a higher market clearing price than would exist if there were no tax credits. The result is car makers tend to be the beneficiaries of tax credits, not the buyers – because the makers just price their vehicles somewhat higher. The tax credits are not as valuable to a buyer as they seem – we would be better off, now, with a market that focuses on delivering better value vehicles to consumers, at prices they are willing to pay.)
