It's an overused question: to buy or to rent? Anyone who has ever considered driving a car has had the same dilemma. The quandary of renting versus buying has only gotten more difficult with the financial crisis.
If you decide to buy, you worry about where or how to get the money, as banks have tightened credit conditions. And what if you get booted out of your job in a few months, how are you going to settle your car loan? Then, there's a plethora of fees (traffic fines, parking tickets, registration, insurance) to settle regularly.
However, if you decide to rent, you still worry that you will end up spending more than what you're supposed to, or you will be missing out on the chance to finally own your dream car. You also feel bad that you actually don't have much freedom to choose the kind of car to drive in.
So, is it better to lease or buy? The answer depends entirely on one's priorities and circumstances. The issue is not so much about whether one is better than the other. Rather, it is more about which one is best suited for every individual. If you have insufficient funds to pay outright for the entire cost of a vehicle, going to a car rental firm is the obvious option.
"If you need to have a car right now and you're hard on cash, leasing is the best alternative. Since banks are already very strict on car loans, the only way to get a car these days is often to buy it in cash. But if you don't have the cash at hand, it would do you good to go to a car leasing company," says Norvie Pedreno, a team leader at Diamondlease Car Rental in Dubai.
Since you pay for only a portion of a vehicle's price when you rent, the monthly cost of renting is always a lot cheaper than the cost of purchasing. This is usually true in short-term leases. A Mitsubishi Lancer 1.3 at Diamondlease, for instance, can be rented for a year at Dh1,500 a month, or less than half the monthly installment (Dh3,298) required in a bank-funded purchase.
In the medium term, rents and monthly installments move quite in tandem, although leasing costs are still a bit cheaper. The latest Nissan Tiida 1.6 can be rented from Hertz for Dh2,156 a month under a two-year lease, or Dh369 cheaper than the monthly cost of buying a car through a two-year loan.
However, in the long term, renting appears to be more expensive than buying. A Toyota Yaris 1.3 hatchback at Thrifty Car Rental can cost you Dh1,725 monthly or Dh62,100 in 36 months, if you get it under a three-year lease. This option is Dh10,836 more expensive than what a three-year car financing would cost you: Dh51,264. If your intention is to spend less on transportation so you can save more for future investments or pay for other household or personal expenses, leasing still seems to be a better option.
Renting a Mitsubishi Lancer 1.3, for instance, would cost you only Dh18,000, in 12 months or Dh21,576 less than buying a car with a one-year loan. According to car rental experts, the monthly lease savings you make can be put into productive investments, hence the opportunity to grow your money is big.
However, car dealers argue that renting does not yield equity, as well as ownership rights over the item being paid for. All the payments you made to your car rental company are considered lost money you will never recover and for which you will have nothing to show.
With buying, the car's value may depreciate over time, but the driver can claim ownership over the car and can always sell it at the end of the loan tenure to recoup part of the expenses.
"Buying a car is more favourable over leasing because the vehicle is your property and that gives you the flexibility to sell it anytime you like," says Jose Picadizo, showroom supervisor at Al Futtaim.
If you prefer convenience over equity and pride in ownership, leasing companies claim they're the winner in this category, as they take care of vehicle maintenance, repair, insurance, registration, and even pay for your traffic fines and Salik charges on your behalf. And you easily get a replacement car if your vehicle stops working or is stuck at the shop for repair.
"Our cars are comprehensively insured. So, there's no headache on your part. You don't have to run around to settle your dues because we take care of those stuff, although there's an extra minimal charge," says Pedreno.
The downside? There's a maximum mileage cap per month, and you could end up paying a hefty sum if you underestimate the distance you've travelled. You may also find it difficult to cut your lease short as you will be made to pay the interest charges for the remaining months of your contract.
Whereas, if you buy a car, you can drive as far as you can and customise, repaint or dress it up to your liking.
- With additional reporting by Aine Moorad, Staff Reporter