The Differences Between Car Leasing And Purchasing, And A Few Benefits And Detriments Of Both

Making your mind up on whether you should buy a car or lease a car can seem quite a tricky decision to make

. This article will hopefully clarify what is involved with both buying and vehicle leasing so that you can make an informed decision between vehicle leasing or purchasing.

If you take out a loan from a bank in order to buy a car, you will have to pay the loan back in monthly instalments plus interest. 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. Now you are not paying interest on 10,000 but instead on 7,000.

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. This use includes the car's depreciation cost (i.e. the value it will lose whilst in your use), mileage that goes over your lease agreement mileage, as well as excessive wear and tear that occurs during your use of the car. You will also pay interest charges during car leasing. A vehicle leasing company will buy a car and then lease it to you, so when you decide to lease a car, the interest you are paying as part of your lease payments is interest on the purchase price (for example 10,000). Note though that because you are paying to use the vehicle during car leasing instead of making purchase loan repayments, the 10,000 amount that you are paying interest on never gets smaller, hence the interest you pay will not reduce like it would if you had bought the car.

A convenient benefit with taking out a car lease is that you never need to go through the hassle of selling the car since when the lease period is finished, all you do is return the car to the car leasing company and it is they who have the task of selling the car. 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. Maintenance costs throughout the lease period should also be relatively low since the lease car will be new at the start of the lease.

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. You will also probably have higher maintenance costs the older your car becomes. One of the benefits of a purchased car over a lease car however is that you can modify it since you own it but you are not allowed to make modifications on a lease car.

by: Dirik Hameed

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