Car financing or car leasing? Which one is a better option

Whichever option you go for the fact remains that you are going to have to pay a monthly charge or fee to the lender, hence on the face of it, these two concepts do look identical.

It’s also down to one’s choice as well, with many other factors not accounted for, in simple terms, the fact remains that financing is actually a process of buying a car in instalments. After a certain number of payments and duration consumed, the car belongs to you.  Let’s not also forget the factor of emotional and personal attachment to the automobile one might have established. In such a case, the question of leasing or financing isn’t valid anymore. It only comes into play if you are looking into dollar value and memory worth equations to make more sense, then comparing car financing and leasing becomes a real deal and prospect to look into.

” Car financing requires credit history checks and is subject to avaiability of a good credit score ”

Car finance with poor credit checks – Is that possible ?

There are some companies which will assist in car finance with poor credit checks. most lenders would not be available for inidividuals with poor or bad credit hisotry however some specilized lenders will lend money at higher interest rates.

While most of us are familiar with car financing, leasing could be a daunting recourse. Let’s have a look first at the car leasing and associated points.

1.1 Car Leasing – What is it actually?

We can call car leasing effectively a long term rental agreement from the lender.  There are legal implications and obligations one has to be careful about, but in a nutshell, it’s a rental agreement.

The car leasing payments are like any other rental payments and have to be paid on predefined intervals, mostly calendar months. These payments tend to be somehow smaller than finance payments however the key difference is

  • Car leasing payments do not allow for an equity share in the car dollar value.

The payment term is usually for the lease period, which is predefined in the contract ( hopefully you read it) and is usually 3 to 6 years. After the car leasing period, the contract stipulates two conditions

  • You can give the car back
  • You may keep it by paying a predefined amount or price shall we say.

There are a number of factors that would define and dictate the way car leasing contracts are laid down. The payments are flexible and depend upon certain conditions.

  • If you can contribute an initial sum or deposit which would help to bring down the lease payments.
  • Any initial value for the care is determined. This exercise is for calculation purposes only and can be considered as car price
  • The length of the car leasing period is the total duration of the contract. The longer the length lower is the lease payment however more expensive the overall cost becomes
  • You will agree to a maximum mileage of the car which you want to stick to. If you go above that mileage, you will incur charges at the end of the lease term.
  • A final sale price, which may be made available in the contract to enable you to own the car at the end of the lease period.

Based on the above factors the monthly lease payments are calculated and they will remain the same during the lease period unless otherwise dictated in the contract.

1.2 Pros – Factors to consider when going for lease option

  • If you are to keep the car you intend to lease, then consider paying a down payment otherwise it won’t make much financial sense.
  • Monthly payments are generally less than the same car hypothetical finance deal.
  • Bear in mind there is no ownership earned in the lease car and lease payments only constitute the rental value.
  • If you want to have the luxury of driving a new car every so often then car leasing works great in those cases.
  • Car leases are made available mostly for new cars. All the perks which come along with the new car also contribute to the equation. You will have a car warranty etc. and any other perk or benefit provided by
  • As mentioned above, you may get free service packages and other benefits, which render lease tenure as essential maintenance and hassle-free drive.
  • There is no need to worry about car resale value or losing money or all the irritations which come along with car sales. If you are not that type of person then it’s great for you.
  • You may double-check it but using a leased car for business may allow for tax deductions.
  • There are no worries about car value depreciation which could be a drastic factor. All payments are pre-decided. However, in some instances,  on a typical finance deal, a car can lose more value than is earned by the monthly equivalent finance payments.

1.3 Cons – factors to consider when leasing a car

  • You need to be extra careful with the leased cars in terms of what is considered normal or allowed wear and what constitutes damage to the car. Also, any changes you have done may also constitute damage to the car and all of it then has to be reversed and any damage repaired before eventual car return.
  • It’s quite complicated in terms of dollar value however It’s usually more expensive and costly to lease a car in longer terms as compared to a similar car finance deal.
  • Any serious damage or incident resulting in leased car write-off may result in extra charges which you would be liable for and not covered by insurance
  • There are no ownership rights whatsoever. It is pretty much a rented car and as such has to be looked after and returned in an agreed state.
  • Any agreed end of lease period price for a car tends to be quite expensive although it can be arranged in the contract. Converting a lease agreement into a car sale agreement is going to be expensive.

1.4  What is the verdict? car leasing or financing?

It would all depend on the objective or goal driving the decision for car buying or leasing. As mentioned above, if you fancy driving new cars every few years then look no further, car leasing is the solution. However, if you want to OWN a car and longer-term benefits, finance is the best answer.

Epilogue

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