Wednesday, September 23

Advantages and Disadvantages of Leasing a Car

Leasing a car is quickly becoming the preferred option for individuals and businesses alike. Because of this, car companies have started giving out better incentives to improve their sales as well. So here are some of the important points to consider before leasing a car.

WHAT IS CAR LEASING?

Car leasing is a type of leasing of a vehicle for a fixed period of time and money from a car dealership. It is an alternate option to buying the said vehicle or car. In other words, instead of buying a car, you just rent it for a certain period of time. A lease is a contractual agreement between the lessee (the customer) and the lessor (the car dealer) for the use of a service, product, or an asset. And paying off a lease depends on factors like the sales price, lease period, fixed expected mileage, taxes, etc.

Car leasing has seen a significant rise over the years. In a 2019 market research report, it was suggested that the compound annual growth rate (CAGR) of the global car leasing market would reach up to fourteen percent in the period between 2019-2023. Now, it is only to be seen whether this trend does in fact come true considering the ongoing coronavirus pandemic and the economic uncertainty.

HOW TO LEASE A CAR?

Advantages and Disadvantages of Leasing a Car

Simply put, car leasing is where you acquire a car of your choice from a lender (the car dealership). You sign a contract with this dealer according to your preferred plan. Subsequently, you pay a certain amount of money every month towards it. You use this car for the contractual period with frequent maintenance checks by the dealership. Finally, at the end of your lease period, you can either give the car back or buy it out from the same car dealership.

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ADVANTAGES OF LEASING A CAR

More Choices

A great aspect of leasing a car is that you have more choices to choose from when it comes to automotive vehicles. Because there is always the uncertainty of whether the car model or car type you choose is the right fit for you or not. Therefore, it is a great way to ascertain if you want the car for a longer time. In other words, it’s like taking the car for a really long test drive. In addition to this, one gets to enjoy the initial smooth phase of a new car. So, there is a hassle-free driving as well as no worries about mechanical issues.

Lower Payments for the Buyer

Another great advantage of leasing a car is that it is much cheaper than buying the actual car. There are low down-payments or none at all. This is the reason one must be sure to compare different lease deals for the best opportunity.

Now when you buy a car, you either put down the entire amount or pay off the car through monthly payments. More often than not, the actual monthly payments for a car leasing may be far lesser than the monthly payments for a car purchase. The lease monthly payments would be usually lesser than 20 percent of the car’s value. After the expiry of the lease period, you just return the car back. This is a huge plus for an individual who would like to drive a car that does not fit within their budget. So, one gets the experience of driving a luxury car or a late-model vehicle without shelling out any extra cash.

Additionally, business owners and companies end up leasing their company vehicles because it is financially more viable than buying the said vehicles. There are additional tax benefits to leasing as well. Therefore, the cost analysis clearly favors car leasing.

Beneficial to Sellers as well

This business model is not only beneficial to customers (lessees), but it is also beneficial to the sellers (lessors). With the current uncertainty of the economy, things have slowed down in the automobile industry. People have stopped investing in car purchases. So, the leasing of a car can be profitable for the sellers. Because at the end of the day, a seller gets paid on a monthly basis to lease out the car while still owning the said car. And then eventually, the seller (lessor) can either sell it to the lessee itself or to any other customer. And since lease periods are usually for a lesser period of time, the seller gets to generate more revenue with multiple customers for one single vehicle.

Convenient

Leasing is a convenient option in comparison to other modes of acquiring a vehicle. As mentioned above, you get to drive a car that may be much further away from your price point. And once the lease period is up, you have the option of leasing a completely different car of choice without going into the trouble of selling the previous car. Everything is managed by the car dealership. In addition to this, while you lease the vehicle, the lessors also service the car monthly to make sure that the car runs smoothly. Hence, the drivers (consumers) need not worry about anything.

DISADVANTAGES OF LEASING A CAR

Limitations

Though leasing a car outright looks good on paper, it does have quite a few limitations. A customer does not have exclusive rights to the car. They are bound by the lease agreement for the said car. Mostly, there is a fix on the mileage per year and if you go above it, you are charged extra money. In order to make monthly payments for the lease, one must have a steady income to facilitate this payment. Also, one cannot try to pay off the lease before the stipulated lease period unless you pay an early termination fee. In other words, there are several loopholes designed by the manufacturers to make more profits from the car leasing setup. Therefore, customers should be vigilant and make a choice that is right for them.

Penalties

Another disadvantage of leasing a car is that if the terms of the lease period are unfortunately flouted, then there are heavy penalties levied. For instance, if the monthly payments of the lease are not paid on time then you are forced to pay a fine. Keep in mind that these payments are already along with the additional fees and taxes that you have to pay above and beyond the fixed amount. Therefore, one should read up on all the intricate details about the deal before making the final call.

Advantages and Disadvantages of Leasing a Car

Not Cost-Effective in the Longer Run

It may seem like leasing a car is cheaper but in the long run, it is certainly not cost-effective. Firstly, when you buy a car, you have the advantage of reselling the car on your terms and get a good payback and your money’s worth. But in case of leasing a car, you make monthly payments and then have to return the car back. The dealer, then, resells the car and you do not benefit from it. Secondly, the hefty penalties, fees, and taxes that need to be paid towards the leased car are much more than what you would towards buying your own car. In addition to this, the insurance for covering a leased car is greater than for the purchased car.

No Equity in the Car

As has been mentioned above, the driver of a leased car is just that, a driver of it. One gets no equity in the car. Once the lease agreement is terminated, the car goes back to the dealership. Hence, the lessee does not get to enjoy the ownership of the car. Moreover, they do not get to enjoy the various benefits of owning the said car.

SO IS IT WORTH IT?

In conclusion, the best thing for someone in the market for any vehicle is to evaluate their personal need. What are they looking for in a car, their budget, the usage, and their wants? Every potential lessee should look at their short-term as well as long-term benefits before taking a decision. Above all, consumers must be well-informed and conscientious of their choices.

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Pros and Cons

PROS

CONS

More Choices

Limitations

Lower Payments for the Buyer

Penalties
Beneficial to Sellers as well

Not Cost-Effective in the Longer Run

Convenient

No Equity in the Car