Loans versus lease
One fine day, you decide you urgently need the latest Ford automobile to ferry your important client around town. However, you dont have the greenbacks to purchase the vehicle outright. Should you obtain a loan or take it on lease
This article is a stepping-stone to make that all-important decision.
First and Foremost, understand the basic meaning of a Loan and a Lease.
Lets refer to The Compact Oxford Dictionary, Thesaurus and Word power Guide (2005):
Loan is a sum of money that is lent to someone.
Loans versus Lease is a contract by which one party lets land, property, services, etc. to another for a specified time, in return for payment.
So, what is a Loan
A monetary Loan, to put it simply, is the money that a person or financial institution gives you for a specific period of time. That amount is known as the Principal and it is what you have to re-pay with interest to the financier. A financier can be a Bank or a Credit Union or even a family member. The tenure of a loan differs from one financier to another, but is generally up to a period of 5 years. If you give greenbacks as upfront money, you are giving what is called the Down Payment. This is generally within a range of 10% to 20% of the purchase price of the car.
Some of the different types of loans available:
Bank Loan- Finance is provided by a Bank. You need to re-pay the amount plus interest prior to or on the date fixed by the bank.
Get A Better Understanding of Why Your Bank Loan Was Rejectedwww.canadaone.com/ezine/sept01/bank_financingParticipation Loan- Finance is jointly given by a group of banks when the finance you require is too large for just one of them to provide.
Direct Loan- Finance is given by a lender directly to you, without the mediation of a third person.
Link to Direct Loan Program of US Dept. of Education www.ed.gov/offices/OSFAP/DirectLoanPersonal Loan- Finance that is provided to you for your personal use after you have proven your ability to pay up the loan.
Home Equity Loan- Finance given to you on the basis of the equity value of your home.
And what is a Lease
A monetary Lease is a contract that you draw up with the
person from whom you are borrowing money. This contract enables you to use an asset, for example, a vehicle, for a certain period of time, in exchange for which you give that person a specific amount. The person or financial institution with whom you draw up the contract is known as the Lessor and you are the Lessee. A lease may or may not have a down payment.
What can you take on Lease
A vehicle is not the only item you can avail of on lease. You can also lease computers, machine tools, office furniture, medical equipment, and a whole lot of stuff you may need for your business.
Ok. So now you know the basics at you fingertips. Lets get down to the nitty-gritty debate of Loan VS Lease
Since the most in-demand item for finance is a car, we will look at the debate from the viewpoint of a potential vehicle buyer.
Loan or Lease: Loans versus Lease
If you are yearning for a new car every alternate year, avoid! Fulfill your wish to turn the ignition key of a new car every two to four years.
If you want to be the owner of a car costing more than $30,000, it will be tough to obtain a loan. A very expensive car is easier to have on leased terms than a loan.
The process to review your Credit is generally long-drawn out. Generally, an approval for a lease will take less than or up to a day.
Tenure varies from 4 to 6 years term of lease ranges from 2 to 4 years.
The car is Yours from start to finish!
The car belongs to the Lessor, to whom you must return it after the lease term expires. [You can, of course, make a decision to purchase it from the lessor]
At the beginning of the loan agreement, you have to pay: Down Payment + Registration Fee + Tax + a whole lot of Other charges = Large Amount At the beginning of the lease agreement, you have to pay: Down Payment (generally upto 10% of cars value) + Security Deposit+ Registration Fees+ Tax=Smaller amount than actual purchase cost
Total Amount of cars purchase price+ Interest + Taxes + Other Fees=High Monthly Payment Depreciation Value of the car during term of lease+ Rent Charges+ Taxes+ Other Fees= Generally lower monthly payment
Premiums on Insurance of the car are generally low Premiums on Insurance of the car are generally high.
Tax Benefit restricted to depreciation. Payment maybe totally tax deductible, depending on your financial situation & type of lease.
You have revved up the engine & can drive for an unlimited number of miles! You cannot eat up those miles on an unlimited basis-there definitely will be an extra charge per extra mile!
Its your own baby so you are bound to take great care of it. Of course, if you do not maintain it properly, the next time you wish to buy a new car, your even slightly damaged car will sell or trade for less. You must treat it with care, other wise when you hand over the keys to the lessor at the end of the lease term, you will be forced to pay up the excess charges of wear and tear.
What to look out for when obtaining a Loan
Other Charges check out the pre-payment charges, processing fees, stamp charges.
Find out the details of Hypothecation.
Insist on a copy of the loan agreement.
Do not get conned when the financier, with a big smile plastered on his face, promises 100% finance. He will definitely ask for a deposit or take an EMI in advance from you. Either way, you are just making him richer!
Link For Loan Information: www.businesschambers.com/Simple%20Loan
What to look out for when taking a Lease
Check out the amount of greenbacks you need to put down as down payment. It should be less than double of the first months payment.
What are the processing fees
If you take a lease for a period of 3 years, stick to that scheduledo not extend it by even one more year merely because you can get a lower monthly payment. If you sign up an agreement for 4 years, which is for a longer period than what you actually need, you will have to put down more money towards early termination charges.
Ensure you find out about charges on mileage and if you feel that your work takes you longer distances, then make an attempt to bargain for more miles per year. Honesty is the best policybetter let the lessor know exactly for how many miles youll be taking your wheels.
Check out the interest rate-it should generally be less than or up to 2% of the price pasted on the vehicles window.
What are the wear and tear charges Tell the lessor to make crystal-clear!
Most important: What is the residual value of the vehicle This refers to the amount the car is worth at the end of the lease term and will already have been determined by the dealer. He will sell the car at its wholesale price and you, as the lessee, will have to pay up the balance.
This is how it is calculated:
Remaining Payments
+ Residual Value
- Wholesale Value
= Balance
So watch out and dont get into the spiders lair like the proverbial fly!
If possible, negotiate with the lessor to put in a clause in the agreement stating that, in case of an accident, he will accept your insurance settlement.
Take a closed-end lease so that at the finishing line, you avoid paying undue extra greenbacks if the cars market value and its residual value do not match. In such a deal, you may even be in a position to buy the car yourself!
Note: In a majority of States, a commercial lease agreement has to abide by Section 2A of the Uniform Commercial Code.
Link to Car Leasing: www.all-info-netLink to Equipment Leasing: www.greatinfo.biz
Whatever your final decision, Loan or Lease, 2 queries you must seek answers to:
Did you check the Insurance rates
This is one detail you must definitely not sidetrack. You may have installed the best burglar alarms, but a savvy thief may expertly circumnavigate them.
Did you find out about the actual vehicle price
Make sure get the know-how about the vehicles features the important ones beneath the hood, not just the gizmos below your dashboard. It would also be useful to know about the present factory price and what the dealer will be actually paying.
A Word Of Caution: Whenever you decide to go in for a loan or take a lease, knock at the doors of a finance professional and tax consultant for expert advice rather than merely depending on information given in this and similar articles.
Most important: Read the loan / lease agreement with great care do not get pressurized by the financier / lessor to rush through the information.
Other Articles
