The Contrasts Between Car Renting and Purchasing, And Some Advantages And Disadvantages Of Both

Getting a car is an exciting prospect but you may not be sure whether to lease a car or buy it. The following aims to shed some light on the differences between the two options, which should help you in deciding whether you want to follow the car and leasing route or the purchasing route.

When you take out a bank loan to buy a car and organise monthly repayments, those payments will include interest you need to pay on your loan. When you make repayments the loan amount you owe the bank gets smaller, and therefore the interest you need to pay is reduced as well because the amount you’re paying interest on is getting smaller. As an example, you get a £10,000 loan and buy the car, and after a certain number of months you have managed to repay the bank £3,000 plus interest. The amount that you have to pay interest on now is £7,000, not £10,000.

The payments on a lease car are different to those for a car purchase because you are paying to use the car, not buy it. Included as part of using the car are the depreciation cost (how much the car decreases in value from its purchase price whilst you’re using it), as well as excessive wear and tear and mileage during your lease period. The vehicle leasing company that you lease a car from has actually bought the car before leasing it out to you, so you are paying interest on the purchase price of the car (for example a £10,000 purchase price). Remember though that with car leasing you are paying to use the car (as opposed to car purchasing) so the £10,000 that you are paying interest on never decreases in size as it would if you’d purchased the vehicle, and therefore the interest you pay will not decrease as it would with purchase repayments.

One of the main benefits of a car lease is that once your lease agreement is finished, you return the vehicle to the car leasing company and it is their responsibility to sell it. Although monthly lease payments are likely to be higher overall for your lease’s duration than if you were to buy a car and pay off a purchase loan, you’ll be able to get a new car every few years when your lease agreements expire. The maintenance costs on a leased car are likely going to be quite low because when you receive it the car is new and the lease period will only be a few years.

Almost inevitably if you are going to sell a car that you bought a few years previously, you will make a loss on the sale compared to what you paid for the car because it will have depreciated in value during the time you owned it. It will also in all likelihood cost more to maintain your car the older it gets. A purchased car however is owned by you and you are free to make any modifications you want to it, which you will not be able to do with a lease car.

Tags: , ,

Comments are closed.