Getting a car is one of the heftiest investments you will ever make in your life. Therefore, it’s wise to consider all your options before you take one into your possession. The two most common options are the car lease plan and purchasing.
If you wish to have a new car every few years but cannot afford to buy one so often, then leasing is the best and safest option for you. Now before we dive into the discussion about why it is ideal to lease a car as compared to buying, it is essential to find out more about leasing. So, let’s take a look.
How does leasing work?
Leasing as the meaning suggests is an agreement through which one party conveys land, service or a product to the other party for a specific time period. This transaction takes place in return for installments made over the course of the agreement. Car leasing is similar to this. You contact a car-leasing company and provide some necessary details about the type of vehicle you are looking for, and they present you with a contract tailored as per your needs.
There are two forms of car leases; closed-end an open-end. With a closed-end lease, the customer is required to return the car at the end of the lease term. Whereas an open-end lease, known commonly as equity lease, allows you to purchase the vehicle at a pre-decided amount when the contract ends. However, the closed-end lease is the one that’s most preferred as it poses less risk upon expiration of the agreement.
Car leasing is in high demand nowadays as more and more people find it affordable and convenient. According to the industry statistics, 1.6 million people lease a car in the UK alone, and this number is only increasing with time.
There are several good reasons why people prefer to lease cars than to purchase them. Some of them are listed below:
It’s not costly
Purchasing a car is more expensive on your pocket than leasing one. This is because when you are buying a car, you have to pay the full price at the time of purchase. Then there are additional costs attached to the acquisition, mainly of maintenance and insurance. Moreover, the car value depreciates over time, and when you are ready to sell it, the amount is way less than you imagined.
In comparison, while leasing a car, you pay the depreciated value of the vehicle over the lease term. This amount is divided by the duration of the contract. There is an initial payment, which is nearly three times the amount of the agreed upon monthly installments.
Since car leasing is in high demand, companies buy the car from the manufacturer and lease it out to the customer at best possible deal. Primarily, the amount of monthly installments depends upon the price of the car, term of the contract as well as the interest rate. In leasing, the Interest rate is also called ‘money factor’ and is based on the credit history of the consumer. The contract may generally vary from three to five years depending upon the agreement. The longer the term, the lesser is the amount of the monthly installments.
You can customize the contract as per your unique needs. There are some conditions laid out by the leasing company as well which include mileage restrictions. Usually, the mileage allowance ranges from 10,000 to 15,000 miles per year for a private driver. However, you can increase the mileage limit in the contract. But remember that exceeding the limit will have you pay extra at the end of the term.
No maintenance cost
Leasing contract may also be tailored to include maintenance cost in the monthly payments. This small amount added to the monthly installments is an excellent deal for you, as the customer. You don’t have to stress over service and maintenance costs now and then; as most of the contracts cover these costs. However, you may have to pay extra charges for any severe damage caused to the vehicle which does not fall under normal wear and tear conditions. Leasing a car also helps to take control of your motoring budget; as your monthly payments cover all these expenses. So, you only have to take care of fuel and insurance.
Enjoy the latest model
The most attractive aspect of leasing a car for a customer is that you can change the model of your vehicle more frequently. This means you can enjoy the latest technology and advanced features of the newer models. The technology in cars is rapidly evolving with higher fuel efficiency, improved connectivity, and high-tech safety gears. Leasing makes it possible for you to enjoy these features; as with this payment option, you can pay less each month as compared to a one-time hefty amount of purchase.
When the contract ends, the customer pays the end-of-lease cost and returns the car. You don’t have to worry about the depreciated value of your car as you don’t have to deal with selling or trading in your car when you wish to have a different one. You may simply lease a new one when the contract ends. However, since leasing contracts are made this way, the customer has no equity in the car. This means the customer does not get any money to use as down-payment for the next vehicle.
There is also an option to purchase the vehicle at the end of the lease period. This option is available to you at the beginning of the lease, with the price mentioned in the agreement. You can avail this option by adding a small amount to the monthly payments and own the car at the end of the lease term.
Due to these reasons, car leasing is becoming more in demand, and so its terms and options have become more workable. The leasing company does not ask for any advance payment. When you pay the initial amount and sign the contract, the car is handed over to you. Therefore, car leasing is easy on your pocket, and it is an economical alternative option to car purchasing.
What do you think is the better option? Let us know in the comments below.