The Differences Between Car Renting and Purchasing, And A Few Gains And Disadvantages Of Both

By Lesley Long

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. 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're only paying interest on 7,000 instead of 10,000.

When it comes to lease cars however, the payments you make are for the use of the car as opposed to buying the car. 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). 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.

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. During your lease period the monthly payments are probably going to be higher than the monthly payments to pay back a purchase loan but the lease has the advantage that when it expires you can choose to lease another new car, so you can drive new cars every few years. 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. 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.

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