Leasing is an alternative way of having a vehicle, for example, and is applied to any kind of product with great value, like cars trucks or heavy machinery. There are some advantages to this type of purchase and also disadvantages. Let us see the main features of both and compare them accordingly so that you may be able to evaluate.
The Traditional Purchase
Traditionally, a purchase of a costly article is financed through a loan. Let us consider cars for our comparison. So, to purchase a car, if we do not have the lump sum to place on the dealer’s desk, we must have the amount financed. Now, we reach the point when we are confronted with a traditional car loan and the process of leasing.
As we all know, a car loan will have an interest rate and a payback term that will give us equal payments which are easy to make. As an example, let us say that a vehicle worth $20,000 can be purchased with a 36 month period and an interest rate of 7.7% which gives a monthly payment of around $624.
Now Let Us Compare It To A Lease
A typical lease is a kind of rent with the option to own later, in some cases, depending on the agreement and the leasing party. It involves lower monthly payments than a normal loan and the reason is that you are paying only for the portion of the vehicle that you use.
The 3-year value of the same car worth $20,000 will be around $8,000 to be paid during the three years, plus an interest or a fee for that term. The remaining value of the car is $12,000, which you do not have to pay if you return the car or you change it for a more recent model, in which case you continue to pay the low instalments. If you are given the option to buy, you still have the remaining $12,000 to pay, meaning a much longer term.
The Comparison
If you purchase directly, you will pay approximately the whole price of the car in the same three years mentioned and you will be the sole owner of the vehicle and you may do whatever you wish with it. The upside of a lease is that you have the option to continue leasing a brand new model, keeping your leased vehicle within an age of not more than three years at all times.
Another Difference
In both cases there is a down payment to be made. For a lease it can be as low as $1,000 whereas for a purchase, you would have to disemburse between 15% and 20%, which, for a car worth $30,000, means between $4,500 and $6,000, certainly an important sum.
Additional Cost
There is an additional cost if you surpass the amount of miles stipulated in the agreement you sign, which is paid at the end of the lease. The only dilemma is the choice between owning the car and just renting it. If you travel a lot, work out the difference between the excess mileage you have to pay and the higher cost of purchasing the same car.
