Should I Buy or Lease?
Leasing a Car
If you are considering leasing a car in Georgia, you should know that you will be paying the full sales tax on the car as a part of your monthly payment.
For example, if you are leasing a car that:
- Costs: $30,000.00
- Residual Value: $16,000.00
- Lease Term: 36 months
- Sales Tax Rate: 7%
Your sales tax liability should be about $2,100.00.
That does not seem fair when you do not own the vehicle, nor are you going to be using the vehicle for longer than 36 months.
Another problem arises when you want to buy out the car at the end of the lease. You then have to pay the full sales tax on the residual value of the car.
In our example above, your sales tax would be another $1,120.00 ($16,000 x 7%).
Balloon Finance
Using the balloon finance method:
- You would pay tax on the initial $30,000.00 (cost of the vehicle).
- If you opt to purchase the car at the end of the 36-month term, then you do not pay the additional tax on the residual value of the vehicle.
This method may work out better for you if you plan to purchase the vehicle after the lease period.
Important Note on Interest
You are paying interest whether you are leasing, financing, or opting for a balloon finance. Make sure to factor those costs into your decision when choosing your vehicle.
Suggested Additional Section for Clarity:
Quick Comparison: Lease vs. Balloon Finance (Sales Tax Perspective)
Lease:
- Full sales tax applied upfront on total price.
- Additional tax when buying out the lease on residual value.
Balloon Finance:
- Full sales tax paid upfront on purchase price.
- No additional sales tax on residual if you buy at the end.
Conclusion:
For buyers in Georgia considering long-term ownership, balloon financing typically offers more favorable tax treatment compared to leasing.
Frequently Asked Questions
What is the main difference between leasing and balloon financing in Georgia?
Leasing requires you to pay sales tax on the full value of the car upfront and again on the residual value if you buy it later. Balloon financing only requires sales tax on the initial purchase price, making it more tax-efficient if you intend to buy the car after the term.
Do I pay interest with both leasing and balloon financing?
Yes, interest is charged regardless of whether you lease, finance, or choose balloon financing. It’s important to compare total interest costs when evaluating your options.
Why does leasing seem unfair in terms of sales tax in Georgia?
With leasing, you pay sales tax on the entire value of the car even though you’re only using it for a limited time and may not own it. This makes it less favorable from a tax perspective, especially if you plan to buy the car at the end of the lease.
Is balloon financing a good option if I plan to keep the car?
Yes, balloon financing may be better for long-term ownership because you avoid additional sales tax on the residual value, unlike with leasing.
How can I compare leasing vs. balloon financing easily?
Use a quick side-by-side comparison focused on sales tax, monthly payments, and final purchase options. The key tax advantage lies in avoiding double taxation with balloon financing if you intend to buy the car.