While vehicle leasing is a relatively new concept in the country, almost a third of consumers choose the option in the US.
Leasing is seen as a more attractive option over buying a car amid rising interest rates, rising petrol prices, inflation and a generally challenging economic climate.
South Africans tend to follow a more tradition financing model when it comes to purchasing cars they borrow money from the bank to make the purchase.
However, according to financiers such as Absa and WesBank, leasing is gaining popularity, especially in the higher-end premium brand market.
One key difference between leasing and a purchasing is that the motorist will not own the vehicle at the end of the lease term.
Lease contracts are typically structured for shorter terms – 36 months – while a vehicle finance contract can be between 12 and 72 months, depending on the buyer’s affordability.
Dale Scorer, Wealth manager at AlphaWealth, has broken down the advantages and disadvantages that come with leasing a vehicle.
According to Scorer, there are a few things prospective lessors need to know about their deal:
“At the beginning of the lease you need to select your annual mileage and it’s important you get this number correct as any excess mileage will be charged for,” she said.
“It is also exceptionally important that before entering into a lease agreement, you fully understand the terms, early termination policies and price calculations.”
Leasing vs buying: the cost
As an example, the group looked at a Mercedes A-Class 200 Automatic, with a purchase cost of R437,450.
Assuming a deposit of 12.75%, proposed km/annum of 20,000, and a lease and finance rate at prime, a 36 monthly repayment works out at:
Lease: R5,000 per month
Purchase: R11,530 per month
At the end of the agreement, a leaser can sign a new contract, return the car and walk away, or settle the guaranteed future value and take ownership.