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leasing vs buying a car

Leasing vs buying a car. Which option is the best?

22 August 2022

The search for a used car is the first stage of the purchase. Paying for it is the next step. It’s another equally important decision whose results you will feel long after registering the car. There are a few financing options to choose from: leasing vs buying a car or perhaps loan or renting.

 

Leasing vs buying a car. What to look out for?

The simplest way is to purchase a car with cash. If you have enough savings, you can finalise the transaction this way. The advantage of this solution is the opportunity to quickly finalise it and, as a result – you might negotiate a favourable discount from the seller. The car you are currently using can be some kind of a financial reserve for you. It’s important, as buying and selling a car are often interconnected, i.e. right before or right after purchasing the next car, the purchaser usually decides to sell the car they’re currently using.

An alternative solution to buying a car with cash is the so-called consumer leasing. This form of financing is basically operational leasing, i.e. you use a car belonging to a leasing company and pay a monthly fee in exchange. This is an option for private, non-business buyers. The advantage of this solution is the minimum of of formalities and the fact, that the leasing instalments do not count when the creditworthiness is calculated, as opposed to the bank loan. Moreover, the leasing companies offer significant insurance discounts, so the third party liability and AC policy (the latter is mandatory for such contracts) should be valued favourably. This is an interesting option for the less experienced drivers. If you already have a big discount for accident-free driving, in most cases you’ll likely pay more than you would’ve paid if you’d insured the same vehicle directly. In addition, due to the leasing lasting a minimum of 2 years, you’ll lose the insurance continuity as a private person – there will be no trace of this period in the database, as the policy is formally issued for the leasing company. As a result, when buying the car at the end of the leasing contract, it may be difficult for you to find an insurance provider that will honour the previously granted discounts.

 

Renting vs. a loan

If you don’t have enough cash, or you don’t want to spent all your savings on a car, you might opt for a loan. Nowadays, the offers tailored specifically to buying a car are less popular than they used to be. With low interest rates, you need nothing more than an ordinary loan. The advantage of a loan is the opportunity of financing additional expenses, e.g. insurance or necessary service expenses at the beginning. The disadvantages include the decreasing of the buyer’s creditworthiness (which is significant if someone is, for example, planning to take out a mortgage to buy an apartment in the future) and the need to establish collateral in the form of a promissory note. Fortunately, a loan can be paid back earlier, e.g. with the money from the sale of the previous vehicle, especially if the purchase of the new one takes some time.

Another option to choose from is renting a car. Nowadays, there are many companies offering renting cars for a specific period of time. They offer a wide range of car models of various brands. Before renting a car, the customer might be asked about their age, how long they’ve had their driving license, as well as their identity card or passport and their credit card/security deposit. While finalising the contract, you are required to pay the security deposit, which works as a collateral for the company. Then, the customer pays for the model they’re interested in for a specific period of time, sign relevant documents, and that’s basically it. It’s important that the person signing the contract actually drives the car. If during the renting period the car takes part in an accident, and it was driven by somebody else, the renting person might be subjected to additional expenses. After the end of the renting period, you need to return the car with full tank.

 

 

Cash, leasing, a loan and renting – advantages and disadvantages

 

Form of financing Advantages: Disadvantages:
Cash
  • The ability to quickly complete the transaction and thus negotiate prices
  • The buyer immediately becomes the owner of the car
  • The necessity of spending a large sum of money at once
  • Possible cost settlement and tax benefit spread over time
Leasing
  • The biggest tax benefits (the cost reducing the tax is 100% of the leasing instalment)
  • Flexibility in determining the amount of the instalments, from the initial payment, through the instalments, up until the buyout
  • Does not reduce creditworthiness
  • The necessity to buy insurance from a leasing company (unfavourable for drivers with large discounts)
  • The minimum contract duration is 2 years without early repayment option 9exxcept for assignment)
 

Loan

  • The ability to spend it on other costs besides buying a car (insurance, service)
  • The possibility of early repayment
  • The necessity to provide collateral (e.g. promissory note)
  • The necessity of buying insurance (for some offers)
  • As opposed to leasing, it reduces creditworthiness
 

Renting

  • The ability to choose an upper-class car for a moderate price
  • You can rent a car only when you need it
  • Before buying a car, you can rent the same one for as long as you wish to check the model better
  • The possibility of using a car without buying polices, insurance or servicing it;
  • It’s an option for tourists who do not travel with their own car
  • Penalties included in the contract might significantly increase the renting cost;
  • There are defined boundaries concerning where the car can be used;
  • The car must be returned in the same condition it was rented – clean, with full tank, without any damage

Own elaboration autoDNA.com

Summary
Leasing vs buying a car. Which option is the best?
Article Name
Leasing vs buying a car. Which option is the best?
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There are a few financing options to choose from: leasing vs buying a car or perhaps loan or renting.
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autoDNA
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