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Online Car Loans Ask 'What's Best For You? Car Lease Or Car Loan?'

Monday 27 June 2016, 5:24PM

By Beckie Wright

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This month Online Car Loans take a look at how both types of car finance work and explore the benefits and negatives of both. When someone has decided they need a new car, they need to work out how they are going to finance their purchase. As the Online Car Loans team say, there are two different directions people can take. One is to lease or the other is to take out a car loan.

A car lease allows people to access a new car without actually owning it by choosing a lease period which is usually between two and five years. When the lease agreement is set up, the expected depreciation of the car over the duration of the lease is calculated. Monthly instalments are then calculated to cover the cost of depreciation - effectively like a loan for that amount - plus additional fees related to cost and profit.  Insurance costs can be higher for lease vehicles, and the agreement will also place some restrictions on the use of the car, especially around what’s deemed reasonable wear and tear, and the permitted annual mileage.

With a closed-end lease agreement the depreciation is agreed at the start of the lease period so there should be no additional costs when it ends. If, however, someone has an open-ended lease agreement the leasing company could calculate that the car value has actually depreciated further than expected and they may be required to make an additional one-off payment to correct the balance. In the longer term - over 10 years - a car lease actually works out more expensive than a car loan, due to the repeated set-up and completion costs. And of course they don’t come away with a car at the end of the agreement.

Car loans allows people to buy the car of their choice. The loan company will set up regular repayments for set amounts, and will charge interest based on the outstanding balance of loan. However, when the loan is paid off, the agreement ends and they are left as the owner of their car, and they have total control over how they use their car. The Online Car Loans team recommend prospective buyers speak to someone on their team to work out the options for their loan so they can set a realistic budget and adapt the loan to changing circumstances.

So, for further information on this subject please visit the website at http://www.onlinecarloans.co.nz .