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The New Auto: Purchasing or Leasing? Term Paper

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Updated: Dec 25th, 2021

Introduction

An individual or organization may acquire an automobile through leasing or purchasing it. The decision of either to lease or purchase the vehicle is usually influenced by various factors including cost of the vehicle, amount of money available for spending, purpose of the vehicle, and length of ownership among other factors. Basically, purchasing a vehicle entails paying the full value of the vehicle immediately the transfer of ownership takes place, while leasing entails parting with only a part of the value of the vehicle equivalent to the depreciation value that will be incurred during the period the lessee has the right to use the vehicle (Ebony, p. 26). However, both of these two options have pros and cons associated with them as discussed in the subsequent parts of this paper.

Leasing automobile

Pros of Leasing

Leasing requires little or no down payment (Shelly, p. 147). In the event a down payment is required, the amount involved is lesser than the amount involved in purchasing plans, and the amount is usually refundable after the expiry of lease contract.

The cost of leasing is lower than purchasing in the sense that, the lessee pays for only a fraction of the value of the vehicle that will be consumed during the period of lease. In this case, monthly payments will be equivalent to the depreciation value of the vehicle during the period plus any interest applicable. In addition, monthly payments are attractive when it comes to taxation as one pays sales tax based on the monthly payment only.

Leasing a car allows an individual to own and “drive a better car than what he or she would normally afford” (Ebony, p.26). Given that the monthly payments are spread over the duration of lease, it becomes convenient for one to drive even the expensive vehicles without having to worry about the cost of the vehicle. In addition, one has the opportunity to drive a new car every few years, a situation that lacks in purchase plans especially when ones’ financial position is not good.

Leasing relieves one from the hassles of disposing of the vehicle once term of lease ends. Basically, when the tenure of lease agreement ends, the lessee will only need to return the vehicle to the dealer or lessor, receive his refundable down payment and walk away.

Cons of Leasing

Under the lease agreement, the ownership of the vehicle never passes to the lessee (unless the agreement provides for the right to buy the vehicle after expiry of lease), thus denying the lessee the privileges of having the freedom to customize the vehicle. Basically, the right of usage and terms and conditions of use are provided for in the lease agreement, binding and restricting the lessee to remain within the confinement of such agreement.

Under lease, one never stops paying the monthly installments until the end lease term, making it unattractive for long term plans. In addition, extra costs are usually incurred in the form of repairs and insurance premiums, making the overall cost of the vehicle more expensive in the long run.

Lease agreements always provide a ceiling of mileage that should be covered during the tenure of the lease contract. This limits the lessee on usage of the vehicle, and in case such a mileage cap is exceeded, extra cost will be charged to cover for extra depreciation of the vehicle (Shelly, p. 147).

The lessee is bound by the lease contract and cannot terminate it before its expiry; otherwise huge penalties will be levied. This forces the lessee to remain with the same vehicle until the lease term expires, unlike in purchasing a car where the owner can sell it any time he wishes.

Buying automobile

Pros of Buying

Purchasing a vehicle transfers the ownership to the buyer immediately. In this case, one has the freedom to customize and use the vehicle the best way he prefers.

Payment is one-off, and the buyer is not obliged to make any periodic payments for the vehicle. In this case, the buyer will enjoy reliable transportation without having to part with any more money except for occasional repairs and insurance.

Purchasing a vehicle is more convenient when one is likely to be making long trips. Given that extra mileage in lease contracts will imply extra cost (since cost is based on mileage), the buyer will save these extra costs by purchasing the vehicle.

Insurance premium of owning a car through purchase is always lower than for leasing, and in the case of a claim, the owner is likely to enjoy a better cover than the lessee. This is because most insurance companies will charge an additional premium to the lessee to mitigate risk. In addition, buying a vehicle gives one the freedom to dispose of it when he wishes (Timmons, Johnson and McCook, p. 185), and where he wishes to keep it for a long term, he is likely to enjoy more benefits given that depreciation slows down as the vehicle ages.

Cons of Purchasing

Owning a vehicle of one’s dreams may be difficult especially when the financial position does not allow. In this case, one is only bound to purchase a cheaper or second hand vehicle that he/she can afford.

Disposing the vehicle or trading-in with another one may be strenuous, especially in relation to identifying a serious buyer. On top of being inconveniencing, the task may prove to be expensive, both in terms of money and time.

Maintenance costs are likely to rise when the manufacturer’s warranty ends unless one sell the vehicle early enough. It is unlikely that lease contract will extend beyond the time of expiry of warranty, unlike in purchasing the vehicle where the buyer has the right to own the vehicle even after expiry of warranty.

Sales tax is always high when purchasing a new vehicle as it will be based on the cost of the vehicle, which is usually high. Moreover, in the event that payment will be made in installments, monthly payments are usually higher than in lease contract.

Conclusion

The decision to purchase or lease a new car may be difficult to make. Basically, one needs to consider the pros and cons of each option and then choose the right one based on the purpose and factors of owning the vehicle.

Works Cited

  1. Ebony. “.” Ebony, Vol. 54, No. 1. NJ, Johnson Publishing Company. 1998. Web.
  2. Shelly, Susan.. IN, Alpha Books. 2001. Web.
  3. Timmons, Daniel L., Johnson, Catherine W. and McCook, Sonya. NY, Cengage Learning. 2009. Web.
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IvyPanda. (2021, December 25). The New Auto: Purchasing or Leasing? https://ivypanda.com/essays/the-new-auto-purchasing-or-leasing/

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"The New Auto: Purchasing or Leasing?" IvyPanda, 25 Dec. 2021, ivypanda.com/essays/the-new-auto-purchasing-or-leasing/.

1. IvyPanda. "The New Auto: Purchasing or Leasing?" December 25, 2021. https://ivypanda.com/essays/the-new-auto-purchasing-or-leasing/.


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IvyPanda. "The New Auto: Purchasing or Leasing?" December 25, 2021. https://ivypanda.com/essays/the-new-auto-purchasing-or-leasing/.

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IvyPanda. 2021. "The New Auto: Purchasing or Leasing?" December 25, 2021. https://ivypanda.com/essays/the-new-auto-purchasing-or-leasing/.

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IvyPanda. (2021) 'The New Auto: Purchasing or Leasing'. 25 December.

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