Amid rising interest rates, inflation, rising petrol prices, and a challenging economic climate, leasing may seem like a more attractive option over buying a car. Many South Africans tend to follow a more traditional financing model for purchasing cars via a bank loan. However, leasing is increasingly gaining popularity, especially in the high-end premium brand market. One key difference between leasing and purchasing is that you will not own the car at the end of your lease term. Lease contracts are typically structured for shorter terms, such as 36 months, while vehicle finance contracts can range from 12 to 72 months, depending on the buyer’s affordability. At the end of the agreement, the leaser can either return the car, sign a new contract, or settle the guaranteed future value and take ownership, whereas a purchaser will own the vehicle, or they can trade it in.
Buying versus leasing – the cost
Financial institutions allow you to buy vehicles and other assets and pay for them over an agreed period. The benefit is that ownership will automatically be passed to you once you have made the final payment. Owning a vehicle also carries none of the economic penalties and mileage restrictions experienced with leasing and renting.
With a lease agreement, you will have uninterrupted use of the car rather than ownership of it. At the end of the agreed period, you can choose to take ownership of the car or return it to the bank. You can drive a new car every few years and benefit from the safety, fuel economy, and performance advancements of newer models. For business owners who use their cars in an income-generating capacity, repayments are tax-deductible. Balloon options are also available under leasing and instalment agreements. Although you will be obligated to pay this at the end of the term, you can benefit from reduced monthly payments.
Make sure you consider mileage limitations. Exceeding your annual mileage restriction stated in the lease agreement, will cost you extra charges, depending on the vehicle purchased. These vary between R2 to R8 per kilometre. A drawback to leasing a car is the audit process when returning it. The leasing agent will finely scrutinise the vehicle to evaluate the damage done to the vehicle. You will need to pay additional fees for anything not considered normal wear and tear. Breaking the lease before the end of the leasing agreement can be costly.
Earn-a-Car has a simple rent-to-own solution for you
If you can provide proof of income, make a minimum upfront payment (admin fee) of approximately R16,500, make a monthly payment of between R4,500 and R8,000, and meet our simple requirements, then you can own a vehicle in as little as 54 months. For more information about lease-to-own and rent-to-buy vehicle financing solutions, contact us today.