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Buying vs Leasing a car

3 Nov 2015

When searching for a new car, one of the decisions you will have to make is whether you are going to buy the new vehicle or if you plan on financing it through a lease agreement. Two things to consider when deciding which options are best for you, will depend on your budget and your needs at the time when deciding if you will buy or lease a new car.

Image: quickpic.co.za

Each option to finance your new vehicle has its own advantages and disadvantages, and thus attempting to choose between them is a challenge for many consumers when on the market for a new automobile.

A key consideration is if you want to be driving the car for the next 7-9 years. If this your plan then buying the car is the better option for you. However, if you are looking to get a new vehicle 2 to 3 years down the line then leasing could be the more desirable option.

In order to consider the options of leasing vs buying, it is best to understand the advantages and disadvantages.

What does leasing a new car mean?

Leasing is essentially a rental agreement with a long-term period, mostly through a bank or a dealership offering this facility. When you lease a new car, you are essentially paying to use the new car for a few years, but you never actually own the car. At the end of the leasing period you can choose to sign a new lease agreement and you get a new car again.

Disadvantages of leasing a new car

You will be charged extra at the end of the lease agreement for any wear and tear seen as abnormal as you are paying the difference of the price when the car is new and when you decide to trade it in.

If you decide to terminate the lease agreement of the new car prior to the end date, you will have to pay the remainder of the lease and if there is a termination cost you will have to pay that as well.

A costly mistake, which should be avoided at all costs, is to make sure that you choose a close-end lease and not an open-end lease. With an open-end lease, the leasing facilitators estimate the deprecation and you pay the difference at the end of the lease.

If your new car taken out on a lease surpasses the mileage limit agreed in the terms, you will have to pay for that which could be costly.

Advantages of leasing a new car

It will have the benefit of ensuring a lower monthly repayment compared to when buying a new car.

A smaller deposit or down payment will be required compared to when buying a new car.

You have the choice of giving it back or buying it as a used car at the end of the lease agreement.

The monthly fees are or instalments are fixed for the period of the lease agreement and therefore will not be affected and the monthly instalments will not go up if there is an interest rate hike.

There is no depreciation repayment risk for yourself. It is simple and the terms are flexible, making it a wise motoring financing solution.

Furthermore, the leased car is covered comprehensively with a comprehensive insurance plan, covering aspects such as theft, fire, accident as well as third party claims.

Advantages of buying a new car

When interest rates are low, buying is the preferred option as the costs on a monthly basis are comparable to that of a lease agreement.

Buying a new car leaves you with an asset when you are done paying it off.

You can enjoy it indefinitely, sell it for cash or trade it in for a new car and it acts as a deposit.

Disadvantages of buying a new car

Unless your car comes with a service plan, which has become the standard these days for new cars, you will be fully responsible for the maintenance costs, insurance, licensing and registration of the car.

If you drive it for a long time, it will become outdated as newer models will be coming out.

Sources:
SA Motor Lease
SME Toolkit: South Africa
Business Tech
Cars
Wheels24
Fin24
Wealth Wise Mag
Cars ZA Info
Liquid Capital
Auto Trader