Things change as time goes by. Some of us may not like it, even though others will enthusiastically embrace it, but the one thing nobody can do is stop it. The auto industry is a fantastic example of how quickly and how much things change, but it's not just the vehicle designs and technology we're talking about here. The way we pay for our vehicles also changes, and there's more behind those changes than just a reaction to the current economic climate. There are now two prevailing ways of getting a new vehicle, so here we're looking at benefits of buying a car against the benefits of leasing a car.


The first thing to get our heads around when considering the relative merits of these two ways of obtaining a car is the concept of ownership. For most people, buying a car can mean two very different things. It can either mean paying the full amount outright, but it can also mean buying on finance. As leasing is also obviously a form of finance, it's easy to see how people can get confused. There are only two ways you are the sole owner of the vehicle you're driving; when you pay for it outright or when the finance agreement has been fully settled and the finance company no longer has an interest.

Difference between leasing and buying on finance

Buying on finance means borrowing the balance between what the vehicle costs and how much you put down as a deposit and paying it back, plus interest and other charges. No matter how big a deposit you put down, the vehicle isn't yours until the finance agreement has been settled. What you are paying is entirely based on the total cost. Leasing is different. With leasing you're not paying back what the vehicle costs to buy, you're actually paying the amount it's going to depreciate over the time you've agreed to have it, plus charges. Some leases will offer you the option of buying the vehicle outright at the end of the agreement if you wish, but that's not really the point of a lease.

Benefits of buying a car

Buying your car is probably best if you tend to keep your cars for a fairly long time as once you own it outright, you won't have any more payments other than the unavoidable costs such as insurance, maintenance and gas. You'll also have equity in your car, which means it's worth something if you want to sell it. In fact, there will always be equity in it even when it's still on finance as long as the depreciation isn't greater than what you're paying. Another big plus for buying is the fact you won't be limited to the amount of miles you can do in it in the way you are with a lease.

Benefits of leasing a car

As you're only funding the depreciation and paying fees, a lease is likely to cost considerably less per month than a traditional finance agreement for the same vehicle. A lease is therefore based on the anticipated residual value of the car rather than its cost. For example, if the vehicle in question is to be bought and it's priced at $30,000 and your total deposit (including any trade in) is $3,000, you'll be funding $27,000. If you are leasing instead and the predetermined residual value is set at 55 percent or $16,500, your lease payments will be based on the $13,500 worth of use that you're expected to get from the vehicle, which is half the price of purchasing outright. At the end of the agreement you hand the car back to the finance company and you're free to do as you like, which will probably be the same again only with another brand new vehicle.



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