A Comparison of Leasing and Buying
Lease vs. Buy 1. Introduction:
In today’s world, customers often face a dilemma about whether to buy or lease. Lease is an agreement in which one party gains a long term rental agreement, and the other party receives a form of secured long term debt. On the other hand, buying involves transfer of ownership from seller to buyer. Buying or leasing decision depends mostly on customer’s preference. There are many factors to consider before taking a buying or leasing decision. 2. Factors Influencing Buying vs. Leasing Decision:
Following are the factors a customer should consider before taking a buying or leasing decision. 3.1. Advantages of Leasing: 1. Low monthly payment: Monthly lease payments are 30-60% lower than purchase loan payments for the same item. 2. Little or no down payment: There is no down payment required for most lease contracts. But some promotional deals require a small down payment. 3. Limited liability: The customer only pays for the part he/she actually uses. For example, price of a car is $20,000 and expected price of the car is $13,000 after three years. If someone leases that car then he/she will pay only $7,000. 4. Tax: Customers pay tax only for the amount they use not for the entire value of the item. 5. Maintenance cost: Most people lease for a term that matches with the manufacturing warranty for that item, so that they do not have to pay maintenance cost. 6. Flexibility: Customers have the flexibility to use latest products. For example, if a customer leases a car for 3 years, then after 3 years he/she can lease the latest car available. 7. Gap Coverage: Most automobile leases include gap coverage. So customers are better protected in lease in case of stolen items.
3.2. Disadvantages of Leasing: 1. Early termination cost: If a customer terminates lease before end of the contract, then termination cost is usually very high. 2. No ownership equity: One of the biggest
In today’s world, customers often face a dilemma about whether to buy or lease. Lease is an agreement in which one party gains a long term rental agreement, and the other party receives a form of secured long term debt. On the other hand, buying involves transfer of ownership from seller to buyer. Buying or leasing decision depends mostly on customer’s preference. There are many factors to consider before taking a buying or leasing decision. 2. Factors Influencing Buying vs. Leasing Decision:
Following are the factors a customer should consider before taking a buying or leasing decision. 3.1. Advantages of Leasing: 1. Low monthly payment: Monthly lease payments are 30-60% lower than purchase loan payments for the same item. 2. Little or no down payment: There is no down payment required for most lease contracts. But some promotional deals require a small down payment. 3. Limited liability: The customer only pays for the part he/she actually uses. For example, price of a car is $20,000 and expected price of the car is $13,000 after three years. If someone leases that car then he/she will pay only $7,000. 4. Tax: Customers pay tax only for the amount they use not for the entire value of the item. 5. Maintenance cost: Most people lease for a term that matches with the manufacturing warranty for that item, so that they do not have to pay maintenance cost. 6. Flexibility: Customers have the flexibility to use latest products. For example, if a customer leases a car for 3 years, then after 3 years he/she can lease the latest car available. 7. Gap Coverage: Most automobile leases include gap coverage. So customers are better protected in lease in case of stolen items.
3.2. Disadvantages of Leasing: 1. Early termination cost: If a customer terminates lease before end of the contract, then termination cost is usually very high. 2. No ownership equity: One of the biggest