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To buy or lease a vehicle, that is the question

Wednesday, 20 January 2016

After a house, the next most costly purchase a person usually makes is that of a brand new vehicle.

While having a car is an absolute necessity for many people, it is also a costly undertaking which will suck money to keep it maintained.   

When it comes to deciding how to finance a vehicle it can get pretty exhausting, given the many options available in the market today. Should you include a balloon payment? Should you put down a deposit and when you do, how much should it be? There’s also the question of what happens if you want a vehicle for a short period and don’t want to deal with the issues that come with permanently owning one?  

What if we told you that, apart from financing a vehicle to buy, there is the option of getting finance to lease or to rent a car instead? Read on as we discuss each of these different finance options that are available.

Although not a relatively new concept, it’s still a financing option that’s yet to catch on amongst South African consumers,  who prefer buying a vehicle to own rather than leasing it for a couple of years and returning it for an exchange once the lease term is up.

The advantages of leasing a vehicle include:

  • Lower monthly repayments.
  • There is usually no deposit required.  
  • There are minimal maintenance issues as the vehicle usually has a warranty.
  • You can drive a much nicer car than you could afford if you bought it.
  • You get to enjoy the experience of driving a brand new car every couple of years.

The disadvantages include:

  • You are only renting it for a period and you don’t build equity.
  • You’ll never stop paying for a vehicle; you will never have ownership of one.  
  • You are restricted to driving only up to a given mileage per year; if you exceed this you will be charged.
  • You should ensure that when the car is returned it is in excellent condition, otherwise there will be a penalty fee charged.

This is a popular way of financing a new vehicle amongst many people. However, with this method, you’ll be restricted to certain vehicle models based on your salary and on how much the lender is willing to finance you.

The advantages of buying a vehicle include:

  • You become the owner of the car once you finish paying it off.
  • You gain equity over time as the car eventually becomes yours to sell or to keep.
  • You save money in the long run.
  • There are no mileage restrictions; you can drive as much as you wish.  

The disadvantages of buying a vehicle include:

  • It’s hard to forecast your car’s future resale value.
  • To get the finance deal approved, you may need to put down a hefty deposit upfront; often this could be as much as 30%.
  • Your monthly repayments might cost you a lot of money.
  • To afford car repayments, the loan term might have to be stretched out over more than five years. 

It’s important to think carefully before buying or leasing a vehicle; just as you would consider several life insurance quotes and not simply take the first one that comes along, you should ensure that you can afford repayments for the car in the coming years before buying or leasing one.

The information provided in this article is for informational purposes only and do not constitute professional advice.

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