San Jose is one of the most naturally beautiful places in the United States. With year-round idyllic weather, the area has long attracted those from less climatically favorable areas of the country. This has led to a rapid expansion of the San Jose area’s population, with demand for quality housing far outstripping supply.
Unfortunately, this, coupled with the generally high California taxes and strict environmental regulations, have made San Jose one of the most expensive places in the United States to live. This extends to the costs of owning a car in San Jose. Even gas prices are considerably higher in San Jose than in other cities of comparable size throughout the country. But the real costs of buying a new car in California come from the outrageously high taxes and registration fees, which surpass those of almost any other state. For example, to register a $25,000 car, you’ll be looking at paying around $2,500. That’s just for registration fees and taxes! It doesn’t include loan fees or insurance. The latter also tends to be higher in California. The fact is that buying a new car in San Jose is a very expensive proposition.
In a state like California, with extremely high state taxes on new car purchases, it can make a great deal of sense to lease. That’s because, unlike buying the car outright, you don’t actually pay the sales tax on the price of the car. There is often a tax on the lease payments themselves. But this adds up to nowhere near the total taxes that would be assessed on the car’s purchase. For example, a $50,000 in California will typically incur nearly $5,000 in state taxes. That same car may have lease payments of as little as $500 per month, leading to a tax on the monthly payment of $50 or less, depending on the city in which the lease originated.
This also means that you only pay sales taxes on what you use. Leasing that same car for a single year would result in just $600 in total taxes being paid. Yet were you to buy that car outright then sell it at the end of a year, you still would have paid $5,000 in sales tax.
But sales and other state taxes aren’t the only areas in which leasing can save you big money. The costs associated with buying a car on a bank loan can be enormous. The main cost is the down payment. A typical $25,000 car may require a down payment of up to $8,000, depending on your credit score. For most Americans, that fact alone makes buying a high-quality new car difficult. Many simply don’t have to savings to meet such a steep down payment requirement.
On the other hand, leasing requires no down payment at all. That same $25,000 car may require as little as a couple hundred dollars in drive-off costs. This can make the difference, for many people, between being able to afford a quality, new car and having to settle for something used. For those who rely on transportation for work and family, the confidence and reliability of a new car is irreplaceable. Leasing can bring those benefits of a new car within reach.
Another benefit of leasing a new vehicle is precisely the reason many feel leasing is a bad move: You don’t own the car you’re driving. The truth is that cars are among the most steeply depreciating assets. And for most people, they are one of the largest purchases they will ever make. This means that most car buyers will be making loan payments on a car that may be losing market value faster than the loan is getting paid down. This can often result in what people in the business refer to as being underwater, that is, owing more on the car than it’s currently worth.
This can be a potentially disastrous, especially if the car ends up being repossessed. In fact, it is not uncommon for people to end up owing money and being forced to make ongoing payments on vehicles that they no longer own. This occurs when the car is repossessed, but it’s sale cannot cover the outstanding amount on the loan.
Leasing avoids all of these risks. In addition, if you happen upon hard times and are unable to continue making payments, in the case of leasing, the lessor will simply ask that you return the car. There may be some nominal penalties, but you’ll never end up in a situation where you could owe $10,000-$20,000 on a car you no longer own or drive. With buying on loan, that scenario is a very real possibility.