The Differences Between Vehicle Renting and Purchasing, And Some Advantages And Disadvantages Of Both

Getting a car is an exciting prospect but you may not be sure whether to lease a car or buy it. The following aims to shed some light on the differences between the two options, which should help you in deciding whether you want to follow the car and leasing route or the purchasing route.

When you take out a bank loan to buy a car and organise monthly repayments, those payments will include interest you need to pay on your loan. Every time you make a monthly payment the overall amount you owe the bank reduces, which means you'll pay less interest as the months progress because the amount you're paying interest on is reducing. As an example, you get a £10,000 loan and buy the car, and after a certain number of months you have managed to repay the bank £3,000 plus interest. The amount that you have to pay interest on now is £7,000, not £10,000.

When it comes to lease cars however, the payments you make are for the use of the car as opposed to buying the car. Included as part of using the car are the depreciation cost (how much the car decreases in value from its purchase price whilst you're using it), as well as excessive wear and tear and mileage during your lease period. When you lease a car from a vehicle leasing company, the company has already bought the car before leasing it to you, which means you pay interest on the car's purchase price (for instance a purchase price of £10,000). However, since with car leasing you are paying for the use of the car and not the purchase of it, that £10,000 amount will never decrease so you will be paying interest on £10,000 for the duration of your lease agreement.

One of the main benefits of a car lease is that once your lease agreement is finished, you return the vehicle to the car leasing company and it is their responsibility to sell it. During your lease period the monthly payments are probably going to be higher than the monthly payments to pay back a purchase loan but the lease has the advantage that when it expires you can choose to lease another new car, so you can drive new cars every few years. In addition it should not cost very much to maintain a leased car since it's a new car when the lease begins and you'll only lease it for a few years.

Due to the depreciation cost, more likely than not you will make a considerable loss if you buy a car and sell it several years later. You will also probably have higher maintenance costs the older your car becomes. A purchased car however is owned by you and you are free to make any modifications you want to it, which you will not be able to do with a lease car.

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