Car Lease Vs. Buying: Which One is Right for You?
Key Highlights:
- Leasing is cheaper upfront but comes with mileage limits.
- Buying offers full ownership and no usage restrictions.
- Leased cars include maintenance, while owners bear service costs.
Vehicle Leasing Vs. Buying: Understanding the Basics
Leasing a Car
In simple terms, leasing is essentially renting a car for an extended period, typically 2 to 5 years. You pay a fixed monthly instalment to use a new vehicle for a predetermined period, with restrictions on mileage, modifications and wear & tear.
At the end of the lease period, you can return the car to the brand, switch to a new model, renew the leasing contract, purchase the vehicle or terminate the leasing.
Pros and Cons of Car Leasing
| Pros | Cons |
|---|---|
| Lower monthly payments and upfront costs | Comes with a mileage restriction (the kilometres coverage depends on the leasing plan), extra charges if exceeded |
| You don't own the car, so you don't have to worry about insurance, periodic maintenance and services. | Modifications aren't permitted |
| No hassle about resale value or depreciation | Early termination fee if ending the lease before the contract ends |
| You can switch to a new car once the contract expires | Monthly charges vary as per the tenure, model and city you choose |
Buying a Car
Buying a car makes you a legal owner of that vehicle, giving you full ownership and long-term control. You can keep it as long as you want, sell, modify and drive unlimited kilometres.
Pros and Cons of Car Buying
| Pros | Cons |
|---|---|
| Full ownership of the vehicle | Higher upfront costs or down payments |
| No mileage restriction | Higher EMIs if financed |
| You can personalise it as per your taste and needs | Steep depreciation, especially in the first year |
| Offer better long-term value if you keep it for many years | Maintenance, insurance and service charges are borne by you |
| May return good value once sold | Resale value needs to be considered if you frequently change vehicles |
Financial Comparisons: Leading Vs. Buying
Upfront cost
Leasing generally attracts a lower initial outlay than buying, which requires you to pay a significant down payment (10-20% if financed) or the entire on-road price if purchased outright.
Monthly Instalments
Leasing generally requires lower payments than loan EMIs because you mostly pay for depreciation, not the full value of the car.
Resale and Depreciation
While leasing, the resale value is not a hassle for the customer, as the car is returned to the brand once the lease tenure ends. Hence, you don't have to worry about its market value and demand. On the other hand, you have to bear the fast depreciation. For reference, a car typically loses 20% of its value in the very first year only.
Ownership Value
While leasing, you own nothing, and at the end of a lease period, you have to return the vehicle. In contrast, the car becomes an asset when you buy it. So you can keep it, trade or sell it, thus adding more value in the long term.
Flexibility
Leasing allows customers to upgrade their cars as per their needs, enabling them to experience new models, latest tech and designs. Buying also comes with similar benefits. However, the process is more complex and a costly affair.
Usage Restrictions
Leasing often comes with a mileage restriction, typically 10,000-15,000 km/year, depending on the leasing plan. Exceeding the limit incurs additional charges based on per-kilometre usage. However, buying gives you complete freedom from restrictions, allowing you to use it as much as you want.
Modification Limits
A leased car must be returned in a factory condition, and you cannot personalise it. However, buyers are free to personalise their vehicles.
Maintenance and Warranty Coverage
Leasing typically covers the manufacturer's scheduled maintenance periods and comes with a comprehensive warranty. For owners, maintenance costs are borne by the users themselves.
Who Should Lease a Car?
You should lease a car if you want:
- To frequently change your vehicles in 2-3 years.
- Lower monthly payments.
- Hassle-free ownership experience without worrying about long-term commitments.
- To not worry about the service/maintenance expenses.
Who Should Buy a Car?
Buying a car will be a good option for those:
- Looking to keep the car for the long term.
- Have a high annual/monthly running cost.
- Wanting full ownership of the vehicle.
Making the Right Choice: Lease or Buy?
Both leasing and buying a car have their own pros and cons. While leasing offers flexibility and a hassle-free ownership experience, with no long-term commitment, buying provides full ownership and control over the vehicle. Leasing/subscription-based ownership is a good option for those who frequently switch their cars or have transferable jobs. However, if you want long-term savings, full control and no usage restrictions, buying is better.
FAQs
1. What happens at the end of a lease period?
You may return the car or start a new lease. Some brands also offer the option to purchase the vehicle outright.
2. Can a leased car be modified?
No, a leased car cannot be modified. A user needs to return the car to the brand in factory condition once the tenure expires.
3. Can I terminate my subscription plan early?
Yes, you can terminate your subscription early, but it might attract a termination fee.