Buying and leasing have always been two good options for owning cars. More recently, the demands for a car increased after COVID-19 compelled many of us to give a miss to public transportation in fear of contracting the virus. Many families faced the hassles of traveling in the last few months owing to the lack of their own transportation. But not all of us are financially fit to buy a car or are inclined to own one for a long time. Let’s find out whether we should still buy a car or leasing is a better option and how credit score plays a role too.
Leasing a Car
Leasing a car has become popular in the last few years in India as it empowers you to drive a new vehicle without opting for a loan or paying a large sum. You may just need to make a small down payment followed by regular monthly payments for the term of the lease. Once the term is over, you can extend the lease, return the car, buy it, or trade it in for a new lease.
Benefits of leasing
- No need for loans: When you are leasing a car, you have to make monthly payments. However, this is different from applying for a loan and paying monthly EMIs in the sense that lease need not be the full amount of the car while EMIs are full amount of loan + interest. Also, applying for a loan is a critical step that is bypassed.
- You can enjoy a new car periodically: This is probably the best USP of leasing a car – you get to drive various cars, albeit after every leasing period, without the need to actually buy them. This is great for those who are passionate about cars and also those who are unsure about which one to buy.
- No hassles of selling and buying: Leasing a car means once you are done using, you no longer need to worry about getting the vehicle ready for viewing, vet buyers, negotiate a price or deal with transferring the title. Once your lease is over, the dealership will take care of the process.
Challenges
- Stringent regulations on usage: Leasing a car requires you to abide by the terms and conditions stated by the leasing company which are oftentimes strict. This is unlike the autonomy you enjoy when you own a car. This means, you don’t get to upgrade the music system, install a new wheel cap or add an accessory to your vehicle! Some companies also apply a cap on the kms you can drive in a year, driving beyond which will charge you accordingly.
- Expensive in the longer run: A lease of say 15,000 a month can quickly add up to a score of a few lakhs in a year or so. Hence, leasing makes sense only when your usage is going to be limited, you want to explore your car choices or you don’t want to be bound with the hassles of owning a car.
Buying a car
Buying maybe a little more complicated than leasing but is a satisfying process in the end. The options are tremendous – you can buy a new car or a used one, you have several choices in brand and budget, you can select any variant that suits your use, you can choose the type of fuel and the possibilities are just endless. Listed below are a few benefits
Benefits of buying
- Full ownership of the vehicle: Once you buy it, it’s all yours, simple. You are not answerable to anyone for any modifications you make in your car, any number of km you drive, and any amount of scratches you put upon.
- Easy EMI options: Although you need to pay the amount in full to the car dealer, you can always opt for a car loan and pay easy EMIs. You can also get a reasonable interest rate between 8% to 11% on new vehicles and around 14% on used ones if you have a good credit score for personal loan. Most of the time, the EMI amount is also less than the monthly payments you pay while on lease.
- You can always sell it off: With so many buying & selling platforms available today, once you have grown out of your current car, you can always sell it off at a fair price and go for a new one. Selling also leaves you with a lot of cash on hand than you had before you purchased the car.
Challenges:
- Depreciation: You must have already heard that a car price drops the second it steps out of the showroom. While this is true, it’s true for all assets.
- Maintenance: Buying a car is not the end process, it comes with a lot of maintenance and each maintenance comes with a cost.
Which one is best?
Buying and leasing both have their own sets of pros and cons. It depends on your individual requirements whether it is better to buy or lease.
The role of credit score in buying and leasing a car
The credit score reflected on your credit report is often directly related to your chances of getting approved for a car loan and the interest rate you’ll pay. Even when you are leasing, It’s best to have at least good credit if you’re looking to lease a new vehicle. Regardless of whether you buy or lease, it helps to know what your credit looks like before you start the process. Check your online credit score to see where it stands and look for ways to improve it before you lease or buy.
