With BMW and Toyota recently launching long-term renting options for their vehicles, more South Africans are now faced with the choice of whether to buy or lease their next ride.
Leasing essentially allows an individual to take ownership of a car without buying it, and pay a lessor a fixed monthly fee that generally includes insurance, maintenance, and licensing costs.
Most lease agreements span between 12 to 55 months after which the car must be handed back and a new contract opened.
Going the rental route can bring certain benefits over purchasing a vehicle via a finance agreement, but it may not always be the better choice.
Pros
The biggest pro when leasing a vehicle rather than buying it through a finance agreement is that in many cases, you can get away with lower monthly payments as you’re not paying the car off in full.
This could allow buyers to opt for a more expensive vehicle than they would’ve been able to get had they bought one outright.
Additionally, lease agreements more often than not come with insurance and maintenance costs included making it easy for individuals to cover their monthly vehicle costs with a single payment.
Through long-term renting, consumers can also get the newest car on the market every few years with little to no change in their monthly spending by only handing back their current vehicle and opening a new lease.
Finally, there are no resale worries about haggling for price or making sure you break even with the bank, once the contract is concluded the car goes back to the original manufacturer and, assuming it’s still in good shape, it’s the last you’ll hear of it.
When it comes to buying a car using a bank or credit provider, the biggest pro is that at the end of the finance agreement you get to keep the model and continue driving it, or sell it and use the capital to bring down the cost of your next purchase.
Having the vehicle in your name also means there are no restrictions on how you use it, the distances you drive, or any modifications you make – though keep in mind that your insurer may still have something to say about it.
Buying further allows more freedom to service and repair the car when and where you want, and by taking out a finance contract you can also strengthen your credit score showing all future credit providers that you’re a trustworthy lender.
Depending on the type of agreement, your monthly payments may also fluctuate and can become cheaper than you initially signed up for if interest rates dive.
Cons
The biggest con when leasing a vehicle rather than buying is that at the end of the rental agreement you don’t get to keep driving it or sell it.
As an “owner” there’s also a distinct lack of control over the car you “own” as the lease terms and conditions govern how far you are allowed to drive, until when you’re allowed to keep it, when and where you must service and repair it, and what you are and are not allowed to change on it.
On top of this, the agreement includes a “fair wear and tear” guide that is generally rather strict, and if any damages are found to be excessive when giving the vehicle back, the repair costs will fall upon the lessee’s pocket even though they don’t have the car anymore.
When buying a new car the biggest drawback is in the form of higher payments as not only is the full value of the car accounted for in your monthly instalment, but third-party costs such as insurance and maintenance are added on top.
Rapid depreciation is another con when choosing to buy a new car as these models lose a huge portion of their value the first time they are driven off the showroom floor and must be kept until a “break-even point” is reached unless the owner is willing to lose a sizeable amount of money.
Keyword: Long-term rental vs Buying a car – The pros and cons