InFocus | Automobiles
The choice is yours
Do you lease or buy a car - which is better? Everyone who has ever considered leasing a car has had this dilemma. If you are buying you take a loan and finance the purchase of a vehicle and if you are leasing, you get finance for the use of a vehicle.
- By Latha Krishnan, Gulf News Report
- Published: 00:00 November 19, 2006
- Image Credit:
Though each has its advantages, leasing is more popular here
Do you lease or buy a car - which is better? Everyone who has ever considered leasing a car has had this dilemma. If you are buying you take a loan and finance the purchase of a vehicle and if you are leasing, you get finance for the use of a vehicle. Each has benefits and drawbacks and which is better depends on the situation.
Is having a new vehicle every two or three years with no major repair risks more important than long-term cost? Or are long term cost savings more important than lower monthly payments? Is having some ownership in your vehicle more important than low up-front costs and no down payment?
Is it important to pay off your vehicle and be debt-free for a while, even if it means higher monthly payments for the first few years? These are some of the questions one needs to consider before deciding on buying or leasing a car.
According to the website www.leaseguide.com, when you buy you pay for the entire cost of a vehicle regardless of how many miles you drive it. When you lease, you pay for only a portion of a vehicle's cost, which is the part that you "use up" during the time you're driving it.
Moreover, leasing a car allows significantly lower monthly payments than if you are buying on finance and you need not worry about maintenance schedules.
Lease payments have two parts: a depreciation charge and a finance charge. The depreciation part of each monthly payment compensates the leasing company for the portion of the vehicle's value that is lost during your lease.
The finance part is interest on the money the lease company has tied up in the car while you're driving it. Loan payments also have two parts: a principal charge and a finance charge, similar to lease payments. The principal pays off the full vehicle purchase price, while the finance charge is loan interest.
In recent years, the mainly expatriate population of the UAE is seen to be relishing the idea of leasing cars rather than buying. According to industry experts, there has been more than 35 per cent growth in the leasing market in the past few years.
Many expatriates prefer the convenience of leasing and driving a new well-maintained car at all times rather than getting a car on a loan and then being stuck with the car after the loan payments have been made.
"Leasing makes sense to the expatriate who plans to be here for a short period. It is a hassle-free option to drive the car of your choice.
"About 60 per cent of our business is now from leasing," says Robert Farrow, General Manager, Hertz.
HSBC MEFCO offers a financial lease, which is an innovative finance solution with a manageable monthly payment structure. This finance facility allows you to use an asset while paying for it over an agreed period.
Ownership does not pass to you automatically once the final payment has been made, but it is one of the options available to you.
The company assumes that the financed vehicle will have a resale value at the end of the lease period. This value (residual/balloon) will be determined by HSBC MEFCO and guaranteed, subject to certain usury conditions that will make your monthly installments more affordable.
Similar lease plans are available from car rental companies who provide it in conjunction with various financial services companies.
All that remains is for you to decide to buy or lease and if leasing, which plan to chose. What you do have to remember is that a car's value depreciates the same amount whether it is leased or purchased and get your priorities in order before taking the plunge to buy or lease.
So, the answer to whether buying or leasing is better, is that it depends on what you want. All of us have different lifestyles and priorities which have to be kept in mind when deciding on which to choose.
According to leaseguide.com, "If you enjoy driving a new car every two or three years, want lower monthly payments, like having a car that has the latest safety features and is always under warranty, don't like trading and selling used cars, don't care about ownership equity, drive an average number of miles, properly maintain your car, and are willing to pay more over the long haul to get these benefits, then you should lease.
If you don't mind higher monthly payments, prefer to build up some trade-in or resale value, like the idea of having ownership, like paying off your loan to be payment-free for awhile, don't mind the unexpected cost of repairs after warranty has expired, drive more than average miles, prefer to drive your cars for years to spread out the cost, like to customise your cars, and don't like the risk of surprise lease-end charges - then you should buy."
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