The Contrasts Between Vehicle Leasing and Purchasing, And A Few Benefits And Detriments Of Both

By Lesley Long

Choosing a new car can be thrilling but you might be undecided in terms of wanting to lease a car or purchase a car. 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. Every time you make a monthly payment the overall amount you owe the bank reduces, which means you'll pay less interest as the months progress because the amount you're paying interest on is reducing. 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. The use of the car includes its depreciation cost (how much value it loses during your use of it), mileage that exceeds your lease agreement and excessive wear and tear that happens whilst you're using it. 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). However, since with car leasing you are paying for the use of the car and not the purchase of it, that 10,000 amount will never decrease so you will be paying interest on 10,000 for the duration of your lease agreement.

A great advantage with a car lease is that when your lease agreement expires you simply hand the vehicle back to the car leasing company and it is their job to sell it. The monthly lease payments are more often than not going to be more overall during the lease period than purchase loan repayments would be, but every couple of years you have the option to get a new car when your lease expires. 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.

Due to the depreciation cost, more likely than not you will make a considerable loss if you buy a car and sell it several years later. You will also probably have higher maintenance costs the older your car becomes. 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.

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