Are you excited to buy your first car? Or are you going to replace the old one which is full of wear and tear and buy a new one? Do you want a car with better mileage and comfort? If the answer to all the above question is a “Yes” then you have landed in the right place as in this blog post we will explain about the difference between Leasing and buying so that you could make informed decisions.
Lease vs Buy
Basically, Leasing a car lets you drive the car without having to bear the heavy sum of actually buying the car while buying a car makes you the sole owner of the car. There are many advantages and disadvantages in both cases.
Let’s dive into those for a better understanding of these terms
The most cost-effective method is the old-fashioned way of buying used cars and optimizing the car to its full potential for a few years and buying another car after that. However, if you are tech-savvy and don’t want to miss the innovative features the new car models offer, it is probably the best if you lease the car instead of buying it. Imagine buying a new car and getting bored with its features. It is not possible to buy another one unless you have a huge bank balance.
The leasing landscape has changed in the past few years. Previously, only high-end, luxury cars were leased by a small section of customers. Now, after realizing the benefits of leasing, the customer demand for leasing has increased dramatically in the last decade. Along with luxury cars, mainstream cars like sedans, SUVs are available for leasing purposes.
Attractive rates have made some leases sound like the better deal. In this leasing process, not only the automobile manufacturers are benefited but the customers are also benefitted. Due to leasing, the used car supply is steady due to the customers. Thus, the resale value is boosted up and due to good resale value, the lease is available at a cheaper price.
Why lease a Car
In this fast-paced world, preference keeps on changing. But now that you have already bought the car and with huge loans hanging over your shoulder, do you have the liberty to change cars?
That’s when leasing comes in. You still get to drive awesome cars and even if your taste in cars changes, it’s not a big deal. Once your lease-period is up, get that car you like, on lease. At a much lower monthly payment structure, leasing is economically the smartest choice to opt.
How to lease a Car
Unlike buying, which gives you the ownership of the car, leasing is a different concept and to grasp the concept of how does leasing a car work keep reading. You can lease a car for a fixed time span – often two to four years for some monthly fee. By this way, you can drive a new car for some time after paying the monthly deposits instead of paying a hefty sum to fully finance the car. After your lease period is over, you have to return the vehicle. Some automobile companies also include a purchase option in their terms, which allows you to fully finance the car.
If you have you made up your mind to lease a car? Now let’s dive into the ‘HOWs’ of leasing the car you like :
Step 1: Learn all about the Leasing terminology
Now that you know leasing a car is more economical than buying it, there are a lot of terms and conditions that come with car-leasing like the mile-limit, and extra car damage fee. Returning your car can be costly too!
If you have already concluded that leasing is the best choice for you, then let’s get familiar with some common leasing terminologies:
- Lessor/ lessee: The company which is leasing you the car is known as the Lessor. You, the person who is leasing the vehicle is called the Lessee.
- Residual value: After leasing the car, your lessor will determine the future value of your car which will be used to fix the monthly payment. This future value is known as the Residual Value. A higher residual value indicates that the Lessor expects lower depreciation which means the vehicle will retain its value better.
- Rent Charge: This is the cost required when you are leasing a car along with the monthly payments. Think of it as a lease interest. Amortization, sales or use tax and miscellaneous fees are included in the monthly payment.
- Deposition Fee: You have to pay this fee at the end of your leasing period when you are returning the leased car. The Lessor or the automobile company charges this fee in order to cover costs like vehicle cleaning, storage fees, administrative costs and prepare to sell the car.
- Purchase-option opportunity: Once your lease-period is over, you will be given an opportunity to purchase the vehicle for your lifetime. This option is known as the Purchase-option opportunity. The price of the purchase will be stated by the leasing company at the start of your lease contract.
Step 2: Set your budget
Make a budget to calculate how much you can spend on monthly lease payments, damage fees, and other miscellaneous fees. There are fees and insurance options to keep in mind.
- Wear and Tear coverage: This is a good option for those who frequently drive and thus put the car through a lot of wear and tear. You won’t be required to pay for wear-and-tear damages at the end of your lease if you have already paid for this coverage upfront.
- Comprehensive and collision insurance: Comprehensive insurance will cover the cost of repairing or replacing your car if there is an incident like theft, fire, and other acts of nature if and only if the terms and conditions of the insurance are met completely.
- Collision insurance will pay for the cost of repairing your car if it is damaged in an accident with another vehicle or object.
- Gap insurance: It is the difference between the actual value of the vehicle and the balance still owed on the lease.
- Visit a dealer with a car in mind: Now that you know all these terminologies, visit a dealer and choose the car you want to lease. Before keeping the car for lease, check the car conditions, take a test drive, and get all of your doubts clear.
Step 4: Bargain
It is a known fact that the dealer will mention a price while keeping their share of profit in mind. Negotiate the monthly payments, mileage, interest rate, and other fees.
Step 5: Treat your car like a queen
Once you have signed the lease contract, you become responsible for causing any kind of damage to the car. Treat your car like a queen or else be prepared to pay for those damages.
Step 6: Turning in or Keeping the car
At the end of the lease period, you should be certain if you want to turn in the car or keep it.
- Two-Three Months before the lease period expiry: It is the time to re-evaluate your budget and make plans for selling the car by looking at what’s on the market and what kind of deals will be available to you.
- One month before the lease period expiry: Get your car inspected and decide the date to let go of your leased vehicle.
- The day before the lease period expiry: Check for any personal belonging that you may have left in the car.
Pros and Cons of Leasing and Buying
Buying a car will give you eventual ownership of the car and you can keep it as long as you want.
|Leasing a car means lower down payment and you get to use the car but you have to return it at the end of the lease unless you go for the purchase option|
|Buying a car will require you to pay high down payment or cash upfront as you are buying the whole car for a lifetime||Leasing requires the first month’s deposit, low monthly payments, registration, and acquisition fee.|
|Buying a vehicle allows you to choose the level of insurance coverage.||Leasing a car will not allow to chose your own insurance coverage. You have to opt for the pre-determined insurance coverage plan.|
|Buying a car will give you the freedom to modify the car in any way you want.||In a lease contract, repairs are typically covered by warranty and the Lessor takes charges these fees during the contract in the form of insurance coverage.|
|Once you have used its services, you can sell off your store-bought car anytime you want You cannot sell a car that you have taken on lease.||Once your lease period is over, you can opt for a new car. If you return your car before the lease expiration date, you will have to pay the early-termination fees.|
|The future value of your store-bought car will be depreciated but the selling amount will be completely yours||If you lease a car, the future value of the car will not affect you financially as you don’t have the headache to sell it.|
|Buying a car gives you the freedom to drive as many miles you want||
Leasing a car comes with a restricted mileage limit.
With this information in hand, you can easily choose the right option- leasing or buying. Why buy a car when you can take one for lease? The car-leasing business has seen a surge in the last decade. So what are you waiting for? Don’t buy. Lease instead. It is a financially smart thing to do.