The Differences Between Vehicle Leasing And Purchasing, And A Few Benefits And Disadvantages Of Both

Making your mind up on whether you should buy a car or lease a car can seem quite a tricky decision to make. The explanations below on what the differences are between a car lease and buying should assist you in swaying either to the vehicle leasing side or purchase side depending on your preferences.

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. For instance you may take out a £10,000 loan to purchase the car and after several months you have paid back £3,000 plus the interest. Now you’re only paying interest on £7,000 instead of £10,000.

The payments on a lease car are different to those for a car purchase because you are paying to use the car, not buy it. 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. A vehicle leasing company will buy a car and then lease it to you, so when you decide to lease a car, the interest you are paying as part of your lease payments is interest on the purchase price (for example £10,000). Note though that because you are paying to use the vehicle during car leasing instead of making purchase loan repayments, the £10,000 amount that you are paying interest on never gets smaller, hence the interest you pay will not reduce like it would if you had bought the car.

A great advantage with a car lease is that when your lease agreement expires you simply hand the vehicle back to the car leasing company and it is their job to sell it. Although monthly lease payments are likely to be higher overall for your lease’s duration than if you were to buy a car and pay off a purchase loan, you’ll be able to get a new car every few years when your lease agreements expire. 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.

Auto Leasing Provides Recession Lifeline

Many businesses traditionally support their transportation needs by purchasing vehicles from local dealers. Being local means that they are ideally located to support servicing and maintenance. Business will usually negotiate a significant discount due to the quantity of vehicles required and the ongoing business they will be providing to the supplier.

The current recession is prompting many businesses to look at alternative ways that they can provide and finance their transport needs.

Accountants and finance departments want to cut costs but, obviously, this must be achieved without any impact on the profitability of the business. Lots or businesses are rethinking the provision of company cars. Instead of providing their executives and sales people with their own dedicated company car, bought from the local dealer, many are turning to business car leasing arrangements. Some are choosing to use a car pool of leased automobiles that can be used by any member of staff who needs a vehicle.

It has been estimated that the leasing approach is saving businesses between 20 and 60% when compared to their previous transport costs.

The same approach has been adopted by many companies requiring commercial vehicles. Leasing vans and trucks is not new to business but was previously primarily used by larger organizations. Many business are resorting to automobile leasing as a way to cut their regular transportation costs during the current recession.

Businesses can really benefit from the many advantages that leasing provides over outright purchase. There are tax advantages for most businesses and the fixed monthly payments help accountants to budget their transport costs.

One of the main disadvantages is that the business never actually owns the vehicles which remain the property of the leasing company. Another potential disadvantage is that you must generally estimate the anticipated mileage and if this is exceeded significant costs can result.

If you are a business, of any size, you would do well to research how much you could potentially save and the advantages that vehicle leasing could bring to your business.