Pros and cons of leasing a car
Have you considered leasing a car?
Leasing your motor vehicle is a relatively new concept in South Africa that is sparking a lot of interest. It’s effectively a long-term rental agreement with an institution offering the facility. With leasing, you never own the car – you get to use it during the lease term, for a monthly fee, but must return it at the end of the lease.
Dale Scorer, wealth manager at AlphaWealth asked what makes more sense, leasing or buying?
“There are a few things you need to know,” she explains, “at the beginning of the lease you need to select your annual mileage and it’s important you get this number correct as any excess mileage will be charged for. It is also exceptionally important that before entering into a lease agreement, you fully understand the terms, early termination policies and price calculations.”
Dale compiled this comparison between leasing and buying.
The numbers assume:
- New/used: New
- Car: Mercedes A 200 Automatic
- Cost: R437 452
- Deposit: 12.75%
- Lease rate: Prime
- Finance rate: Prime
- Proposed km/annum: 20 000
The monthly payments on a car lease may be significantly less than those you would have incurred had you financed a loan on the same vehicle – it may actually cost less to lease a new car over a short period of time, than it would cost to buy the same car and trade it in.
The advantages of leasing
- Since lease payments are usually lower than monthly loan payments, you have the opportunity to invest the difference in cost.
- You face no resale risks, at the end of the term, you can return the car and trade in/sales price is not your concern.
- You have the opportunity to drive a new vehicle more frequently.
- Service/motor plan extensions and costs are not something that you need to worry about.
- If you own a business, leasing may provide tax benefits if the vehicle is used for business purposes.
- More choice and flexible end of agreement options.
- Demo and used vehicles can be leased, providing that the vehicle is less than 1 year old and has less than 20 000km.
The disadvantages of leasing
Make sure you consider:
- First and foremost, the mileage limitation, if you exceed your annual mileage, the charge will vary according to the vehicle purchased, from R2 – R8 per kilometre.
- If you lease your cars, you will always have car payments.
- A drawback to leasing is the audit process when returning a leased car. The lease agent will finely scrutinise the car to evaluate the damages done to the car. You’ll have to pay extra fees for anything not considered normal wear and tear.
- Breaking a lease early can be expensive.
Conclusion
Scorer concludes, “Leasing tends to be a more favourable option if you are the type of person that owns a new car every 3 – 5 years, either before it is paid off or once you can use the trade in for a deposit on a new car. However if you tend to be hard on cars, if you are “accident prone”, if you prefer owning a car debt free, or put a great amount of mileage on your car, leasing is probably not for you.”
Source: AlphaWealth