In car buying, the customer pays the full amount of money and gets the title of the vehicle. The buyer compensates the cost of the automobile to the selling company. Means of payment can either be, pay the full amount or take a loan. With the loan, you pay a deposit and monthly installments until you explain the entire amount. You officially own the car after making all payments. An individual can choose to either buy a second-hand automobile or a new one. You finance its repair costs in case of breakdown.
While in car leasing, the firms buy vehicles on behalf of their customers. An individual after identifying a leasing company, they will then get into an agreement. They sign a contract about maintenance, mileage and leasing period. You then make the first payment, which will be followed by monthly down payments. When the lease ends, you will either return it or buy it and pay the residual value. Which is the amount of car value remaining after making monthly payments? On returning, you may be required to pay a disposition fee for any extra mileage or wear-and-tear. This is as terms and conditions are stated in the signed contract.
There are some benefits which make some consider leasing than buying. They are as listed below;
You pay lower sales tax
Sales tax is the amount levied at the time of sale and given to the government. Because a customer does not buy the automobile, you will pay fewer sales tax. In this case, you do not make down payment. Instead, you are required to pay sales tax, as monthly payments. One is charged money factor which is a commercial rate. It is common to interest paid after taking a loan. While in buying there is higher sales tax paid compared to leasing as the customer owns it.
You can forecast the total cost to incur
It is possible to predict the full cost because there is fixed period. Also, there is an initial payment about twenty percent of the car value and monthly payments. This would make it easier to know all the expenses to be incurred. The dealership firm maintains most leased vehicles. When a car is bought, it is hard to forecast total amount required. It may experience a severe breakdown, and it also requires insurance fees.
Need lower capital outlay
To lease a car, it requires lower monthly payments. You only compensate to the company the depreciation of the car. It makes owning a brand car affordable to those without huge savings. It also gives them ample time to use their cash in other activities. When maintenance, tear and wear and mileage are observed, one is not charged. Unlike when considering to buy, you purchase the car at its value. It leads higher initial monthly payments which are not favorable to those with lower cash outlay.
In my ken, I would probably encourage people to mostly lease than buy vehicles. As argued above it is of more benefit, just because you be required to pay lower sales tax. Also, you can be able to forecast the total cost to incur in leasing. Most importantly you would need less cash outlay as there is little monthly payments. This is much better than buying although it has some of its importance.