The basic difference between leasing a car and buying it is that the former pays for the period the car is used, whereas the latter pays for the entire cost of the car. Thus, if you lease a car, you only have to pay for the period that you are going to use the car. After the period is over, you can turn the car in and lease another one. But when you buy a car, you own it. Suppose a car costs $20,000 and you lease it for two years. If the value of the car after this period, taking depreciation into account, were estimated to be $12,750, then you would have to pay only the value that you have used up. This would be $11,250. This amount can be paid in monthly installments. Many provinces add a sales tax to the monthly installments. However, in an outright purchase, you pay the entire cost of the car or take a loan to pay for it. To repay the loan, there are monthly installments calculated on the entire value of the car, which would be $20,000 according to the above example. So the installments on the loan would be significantly higher than those on a lease. It all depends on the discretion of the buyer whether a lease or an outright purchase is more convenient. Leasing a car does not mean owning the car; it is more like renting a car for the particular period. A leased car is the dealer's property, and you are paying for the usage. You are required to take good care of the car. Dealers charge a deposit when you lease. If your records of car maintenance are not satisfactory when you turn the car in, you stand to lose the refundable deposit. Lease dealers also set a limit on the mileage of the car per year-- something like 12,000 to 15,000 miles. If you exceed this limit, then you have to pay 0.10 cents or more per excess mile. Thus, leasing does not work well for people who travel a great deal. It is understandable that an accident would terminate the lease on the car, and you would be obliged to buy it and finish paying for the lease. Making the lease period coincide with the warranty period of the car so that all major repairs are covered can easily prevent this. When you buy an automobile, you are totally responsible for it after the warranty period is over. Loan payments also include depreciation charges because you are using the car. The remainder of the payment adds up to the value of the car, termed as equity. When you buy a car, you also pay a sales tax upfront, making it more expensive than the price quoted. There are also delivery charges. The advantage is you own the car. Leasing entails some problems. For instance, the estimated depreciated value of the car is always less than what its market price would be. Imagine a car that costs $20,000, and its estimated value after two years depreciation is $12,750. In reality, the price would be higher after two years, say about $14,250. You stand to lose the remainder or $1500, even if you trade your car in or re-lease. Also, when you lease a car, it is wise to take out guaranteed auto insurance (GAP). This insurance protects you in case of theft or an accident during your lease period. The dilemma of leasing or buying a car is ongoing. It actually depends on the person. People who do not wish to own a car, drive carefully, want lesser payments and have a penchant for changing cars every two or three years may prefer a lease. But, if you have an inclination to own your vehicle and don't mind paying a higher price, then you should purchase it outright. |
