Buying VS Leasing

Buying a car with a wad of cash is no longer a viable option for most of us. This leaves you with two alternatives, an instalment agreement or a lease agreement.

INSTALMENT AGREEMENT
In simple terms, an instalment agreement refers to paying your car off every month over a certain period of time, usually between 24 and 72 months depending on your bank. Once you've found the car you want to buy, your bank will pay the dealership the full amount and you will then repay the bank in instalments. According to Rudi Pretorius, senior manager for Nedbank Vehicle Asset Finance, you can choose whether or not you want to make use of a balloon payment. If you opt for a balloon payment, it will lower your monthly instalments but you will have to pay a lump sum at the end of the agreed repayment period.

An instalment agreement is perfect for you if you want to eventually end up owning the car, says Pretorius. There are no cons to this option, adds Pretorius, and is the preferred finance option for private individuals.

The down low: Once you have paid the full amount to the bank, the car is all yours. You can also trade the car in for something else, or, says Pretorius, 'if you decide to sell the car, you will enjoy the full benefit of the proceeds.'

LEASE AGREEMENT
'A lease agreement is ideal for private individuals who don't want to own the vehicle and want to use the car for an agreed period of time,' says Pretorius.

Leasing a car works similarly to an instalment agreement, but the car won't automatically be yours once you've made all of your monthly payments, says Pretorius. The bank will continue to own the car, unless you extend the lease, cough up a balloon payment at the end of the given period (after which you will then own the car), or give the car back to the bank.

The down low: You don't have to own the car if you don't want to… it's completely up to you whether you choose the keep it or not. You can change cars quicker than with a lease agreement, but you have to sign with the same dealership.

SIDEBAR
Payment Holiday: Some banks have a payment holiday option, allowing you miss a monthly payment if you're struggling to make ends meet.
Fixed Interest: Check if your bank offers you a fixed interest rate. This means your payments will stay the same for the full payment period and won't fluctuate as they would do under market-related interest rates.

Author: Lindi Brownell