In the market for a new car? You might be considering leasing it, allowing you to pay for it for a fixed period of time (often three years) while making monthly payments until the lease expires. Leases are short-term rentals up to a maximum of three years, and typically the cost of rental also includes car services.
“While leasing is newer than the traditional ownership options, it has quickly risen in popularity,” says Barend Smit, Marketing Director of MotorHappy, a supplier of motor management solutions and car insurance options. “However, as with any major financial transaction, it’s important to consider the pros and cons before agreeing to a contract.”
Leasing a car gives consumers more flexibility because it offers the option to drive a new car every few years. “The leasing model is ideal if you want to change your vehicle often without incurring financial penalties. When you lease your vehicle, you’re always driving a relatively new car, and one that’s generally covered by the manufacturer’s warranty. You also get to drive a better car than you might otherwise be able to afford because when compared to buying, the monthly payments on a leased car tend to be lower,” explains Smit.
At the end of the lease agreement, you won’t own the car – however that also means you won’t have to worry about selling a car that has depreciated over time.
“Besides never actually owning the car despite paying your monthly leasing instalment, there are other important cons to consider,” points out Smit. “When deciding on your leasing agreement, make sure that you’re realistic about how many kilometres you usually drive in a year. Companies that lease cars are very strict about the number of kilometres the car can be driven, with stiff financial penalties for any distance over the agreed amount.”
Additionally, while a lease allows for normal wear and tear to the car, you might be charged extra if it’s found to have more wear and tear than is considered fair.
“Finally, like any contract, it’s important to understand and agree to the terms of the contract. If you don’t fulfil the full term of the lease, you’ll likely face penalties,” he says.
Before committing to leasing a car, be sure to do thorough research. Weigh up the costs of buying a new car, investing in a previously-loved car or leasing. When comparing costs, remember to include monthly running costs like insurance, servicing and maintenance, and insurance.
In today’s challenging economy, buying a used car is often a more affordable option when compared to the cost of buying a brand-new car. “If you decide that buying is a better option, visit the MotorHappy website to browse through the hundreds ofpreviously owned cars listed,” advises Smit. “Allvehicles listed on our site have a proven service history and undergo a stringent 116-point quality assurance check. We can also help you arrange finance and insurance for your new set of wheels.”
Whatever finance model you opt for, it helps to know your credit score before beginning the process. Your credit score shows you any issues you might have in your credit history. If you apply for car finance, the financial institution will also have access to this credit score. They will have a good view of how well you pay your bills and how much debt you have. It gives credit providers a bird’s eye view of how you manage existing credit.
A high credit score is favourable to financial providers, while a low score implies that you have a negative credit rating and either your request for finance will be denied, or your interest rate will be even higher. Credit providers use different scoring methods but the score range is usually between 330 and 830. Above 750 is an excellent score.Of course, when it comes to leasing a car or taking out car financing, credit providers will still also consider the usual risk factors like your expenses and salary.
By law, everyone in South Africa is entitled to one free credit report a year. There are several credit bureaus in South Africa who are obliged to give you your score when you request it the first time. If you ask again that year, they can charge you for it. It’s fairly quick and easy to apply for your credit rating.