With the constant rise in the prices of cars with the latest safety features, many customers now prefer to lease a car instead of buying a new car altogether.
Due to the ever-increasing prices of cars, buyers often have to resort to taking up loans in order to afford new cars. They end up paying a considerable amount of money every month along with interest until the entire principal amount of their loan is cleared off. Needless to say, this is a financially straining procedure and customers often have to bear the burden long after they buy a new car.
However, when you lease a car, you only have to make a monthly payment to the owner to drive a new car for a limited period. This bill, believe it or not, is often less than the cost of financing a new vehicle.
Difference between lease and finance?
- Ownership: When you finance a car directly, you become the owner of the vehicle and can retain it for as long as you want. However, when you lease a car, you don’t own the vehicle.
- Up-front costs: Down payment, registration, insurance, and other expenses are all included in the initial costs of purchasing a vehicle. On the other hand, when you lease a car, the costs may include the first month’s payment, a security deposit (refundable), down payment, registration, taxes, acquisition fees, and other such costs.
- Monthly payments: Monthly loan payments when you buy a car are usually higher than the lease payments. This is because the loan payments include the purchase price, interest, taxes, and fees. However, lease payments only include the depreciation value of the vehicle along with rent charges and taxes.
- Early Termination: When you buy a car, you can trade-in or sell your vehicle at any time. However, when you lease a car, termination before the completion of the lease period as specified in the agreement can cost you heavily.
- Vehicle return: Buyers have to take care of trade-ins or selling when they want to change their car in case, they have bought the car. However, users can simply return the vehicle and lease a new one once their lease term is complete.
- Value in the future: In the case of financed vehicles, the value of the car depreciates with time. Users who lease a vehicle, on the other hand, do not have to be worried about the car’s potential value. Return the car at the end of the lease period, it’s that simple.
- Modifications: When you buy a car, you are absolutely free to modify your car in any way that you deem fit. It is often mentioned in the lease agreement that the leased vehicle must be returned in the condition that it was taken initially.
Should you lease or buy a car?
Here is a list of pros and cons of leasing a car to help you settle the lease vs finance debate, once and for all.
Major Advantages of Leasing a Car
- When you lease a car, you get to use it in its most efficient years.
- The car you are driving is usually a late-model and is covered under the manufacturer’s warranty. This may also include costs of scheduled maintenance, free oil changes, and the like.
- Leasing a car is your way to drive a swanky vehicle with the latest features, something that you wouldn’t be able to afford otherwise. Moreover, you can negotiate the price specified in your lease agreement.
- The car’s trade-in value is not of your concern. Moreover, you can skip the inconvenience of selling it when it’s time to upgrade.
- It could result in significant tax benefits for business owners.
- You can simply drop off the car to the owner, once your lease period is over.
Drawbacks One Can Encounter While Leasing a Car
- Although from the looks of it leasing a car might seem like a financially better option than buying a new car, users usually end up paying more than an equivalent loan. Since you’re running a depreciating asset, this is to be anticipated.
- When you lease cars one after the other, your monthly payments will never end. On the other hand, once you clear the loans after buying a car, the value of your car keeps increasing. Buying a car and keeping it until it is uneconomical to repair, is probably the cheapest way in the long term.
- Lease agreements usually specify a fixed number of miles. Going over the specified limit of miles makes you liable to pay an additional mileage penalty fine which can be anything between 10-50 cents for every additional mile.
- Customers are responsible for keeping the car in good working order. In case of damages, you need to pay excess wear-and-tear duties when you return them.
- It can be costly if you change your mind about the vehicle during your lease time. Users are usually charged a hefty amount in early termination fees and penalties if they want to get out of the lease agreement before the completion of the stipulated time. These payments can be as much as the overall cost of the lease for the entire duration, and they must be charged all at once.
Important Things to Keep in Mind
It is important to remember that if you want to buy a car and change it after a couple of years, financing with the help of a loan is not a viable option. While buying cars, some buyers opt for long-term loans that extend from 6-8 years to get a lower monthly payment. However, such a loan repayment structure makes it very easy for the buyer to get “upside-down”. It is when you owe more money than the value of the vehicle itself. It is always more beneficial to lease a car instead of opting for long-term loans. Furthermore, leasing a car is the way to go if you want to drive a new model every few years with minimal hassle. Also, it is well worth the extra expense. Buying a new car every couple of years becomes practically impossible in this situation.
If the lease’s terms are not suitable for your needs, consider buying a less expensive new car or an old car that is in good condition. Such as a licensed pre-owned vehicle from dealers, or increase your term of the loan. You must be wondering: can you lease a used car once you make up your mind to change your vehicle? Well, the answer is yes and the returns you get in the process are pretty beneficial.
Carefully consider the pros and cons of leasing and buying a car before arriving at a final decision. At the end of the day, it is always about what suits your needs the best.