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Comparison Between Buying And Leasing a Car

Referencing Styles : Harvard | Pages : 1

Comparison Between Buying And Leasing a Car

In this world, different people have different type of mentality on the idea of buying a car. There can be people who will like the idea of buying a new car while some will prefer buying a used car and use that for as long as they can and after that buy a new car. Then, there are people who might prefer leasing new car so that they can enjoy the new features of the new car and pay the money for the car in instalments and they can save a lot of money by not investing the whole amount at once. It is up to the personal view of the person thinking of buying a new car.

The leasing option was once only available to the businesses and to the customers who wanted luxury cars. In today’s world leasing is available throughout the market for all classes of cars, ranging from subcompact cars to luxury SUVs.

A brief discussion on the comparison on leasing and buying a new car is provide to help people make the correct decision. Before that, understanding the concepts of leasing and buying should be understood by everyone.


In very simple terms, by the use of leasing the person do not have to pay or invest the whole price of the item at once. In the leasing process, only the depreciation money has to be paid by the user over the term of the lease, and in addition the interest and the additional fees. There is one down payment after that the documentation is signed by the user and the rest of the amount is paid in monthly basis with a very small amount of interest rate. It may look very simple, but the process of leasing a car is very complex and might be confusing with all the array of numbers that are shared during the process. There are few terms related to leasing, that everyone should be aware of, these terms are: Capitalized cost, residual value and money factor.

What the above provided terms mean?

Capitalized cost: It is also known as cap cost and is simply the price of the product or the car for this discussion. The user must start negotiating before buying the car. Any discount on the capitalized cost is known as cap cost reductions.

Residual cost: The cost of the item or the car in this case at the end of the lease period is known as the residual value.

Money factor: The rate of interest that is paid by the user on the lease is known as the money factor. There are several online money factor conversion tools that can be used to do the money factor calculation but, it can also be done manually.

A very simple calculation for the people who want to lease as car. The amount that is paid by the user is the capitalized cost minus the residual value in addition to the interest. There are other charges like the lease origination and the registration cost for the vehicle. If someone wants to lease a SUV that has a capitalized cost of $30,000 and has a residual value of $15,000 then the person is liable to pay $15,000 with the additional costs and the interest. The dealers are very much clear about the drive off costs of the car and the lease agreement. Most popular lease period time is two and three years but there is always a space for negotiation. Now, let’s come to the concept of buying and financing.

What exactly is buying and financing?

Buying a product simply means to pay off the whole amount at once without any additional cost or interest rate. For an example, if the price of a car is $30,000 then, the amount mentioned is the final amount that includes all the necessary amount that needs to be fulfilled to take the car home like the taxes.

Financing is simply taking loan from a lender or any financial institute like the bank, credit card companies or any finance company. In financing the user makes a down payment and pays the rest of the loan amount with the interest in a series of equal monthly payments. The term that is used to denote an auto loan is called tern, and these terms range from a few years up to seven or eight years. In financing, the money lender holds the title of owner until the whole amount is paid off. After the financing is clear the person can have the ownership of the vehicle. In America, financing is more preferred than leasing a vehicle.

Benefits of leasing a car

Firstly, there can be low monthly payments. As, the user have to pay only the depreciation of the lease so, the monthly payment is almost always lower in case of a lease than buying and financing a car. Although, this cannot be the only criteria that a person should take into account while buying a car. Leasing can get a person a nicer car with the same monthly payment which is also same as buying.

Another advantage of leasing a car can be, a person can get hands on to the latest technologies that are being implemented in the modern cars like the adaptive cruise control, driver assistance, automatic emergency braking, GPS assistant and many more. There are other features like the support of Android Auto and 4G LTE data connection.

The manufacturer will cover the warranty and the maintenance of the vehicle. The user is free from the expensive repair costs.

It is easy to trade in a car on lease than buying one. In some cases the sales tax is also not applicable on leasing a car. Leasing also have small down payments.

Disadvantage of leasing

  • There is no ownership of the vehicle.
  • The mileage is limited in the leased cars.
  • The cars cannot be modified or customized.
  • The may be additional costs for any extra mileage and for any wear and tears in the car.
  • There may be some restriction on the use.
  • Complete ownership.
  • There is no restriction on the mileage.
  • The car can be sold out later on for some extra cash.
  • When the financing is over there is no additional cost.
  • Freedom of customization of the vehicle.

Benefits of buying a car


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