Difference between leasing and car loans
The possibility of financial leasing of vehicles is available to almost everyone. And it was appreciated by Europeans who for various reasons were forced to live abroad for a long time. Now car leasing has become available to individuals, but like everything new, it raises a lot of questions. So, let’s start with what is the difference between leasing a car and buying on credit?
Car leasing versus a loan for a car
When entering into a leasing deal, please note that you will not be the owner of the car. You will only have the right to use the rented car and, if you decide not to buy it, you will have to return it to the owner, that is, the leasing company. With the purchase of a car on credit, it immediately becomes your property.
In terms of primary expenses, leasing and credit are similar; both transactions involve making an advance payment, depending on the program, its size will vary between 10-30% of the cost of the car. Still have to spend on registration documents in the case of leasing it is the power of attorney, allowing to use a car when loans you have at their own expense to put a car on accounting in state institutions. The difference will probably be in the insurance sector; when lending, insurance costs will definitely be your expenses, and when leasing everything will depend on the policy of the lessor.
When leasing, monthly payments will be lower, since you essentially just compensate the owner of the car for depreciation costs, depreciation of the car during its operation, plus pay rent and, possibly, some commission fees.
Early termination of the agreement
Like a loan transaction, a leasing transaction involves the early termination of contracts on the initiative of an individual. However, it often means the need to pay fines. However, some leasing companies refuse such levies if the client simply decided to buy a rented car ahead of time.
Increasingly, landlords limit the number of kilometers of mileage for cars that are rented. You can expand the limits if necessary, but it will cost more. If an unauthorized transfer occurs, you will have to pay a fine when returning the car. There are no restrictions on lending, but it is worth remembering that the mileage will matter if in a couple of years you decide to exchange a car for a trade-in.
Expiration of the agreement
With a loan, everything is simple, after paying off the debt to the bank, you become an absolutely full owner of the car, all encumbrances are removed from it and you have the right to do with it what you want. The end of the lease agreement usually implies 3 options. The first one is the simplest, you return the car to the leasing company, and if you haven’t violated anything anywhere, you can just say goodbye to it.
The second option involves buying a car. If during the leasing period you decide that you need just such a car, and it suits you both in quality and price, you pay the leasing company the balance for the car that is stipulated in the contract (buy the car) and become the owner of the previously rented car.
The third option involves entering into a new financial lease agreement for the same car, of course, its cost will be reduced, adjusted for age and mileage.