Used Car Leasing Vs. Buying a Used Car with a Loan

Buying a second-hand car in India is a cost-effective alternative to purchasing a new vehicle. However, choosing between leasing and buying a used car can be challenging. Leasing a used car operates as a rental system, allowing flexibility to switch between different models periodically. 

Alternatively, purchasing a used car provides full ownership, ensuring complete control over its usage. Owners have the flexibility to customise the vehicle, drive without restrictions, and decide whether to retain, trade, or sell it in the future. 

As both options have distinct advantages and drawbacks, a cost comparison is essential before making the final leasing vs buying decision. If you wish to purchase a used car, you can also opt for a used car loan on Bajaj Markets with up to 100% of your used car’s value.

Used car leasing, also referred to as second-hand car leasing, is a rental arrangement for pre-owned vehicles. Under this system, individuals rent a used car for a predetermined period and pay a fixed rental amount. 

There is no requirement to pay the full cost of the car, but leasing does not contribute towards ownership or equity. It requires minimal upfront expenses and provides predictable monthly costs based on selected mileage and duration. 

It often requires little to no down payment; however, mileage restrictions may result in overage charges. Leasing allows for periodic upgrades to newer models, offering a degree of flexibility that ownership does not.

Buying a second-hand car is an affordable option if you don’t wish to invest a substantial amount in buying a new car. However, it requires payment of the full cost of the vehicle.

This expense can be managed through a used car loan, which helps distribute the financial burden. Purchasing a used car grants complete ownership, allowing full control over maintenance, modifications, and resale. However, ownership entails additional maintenance costs, which may be unpredictable and increase the overall expenditure. 

Moreover, depreciation affects resale value, reducing the return when upgrading to a newer model.

The main differences between purchasing a used car and leasing involve initial costs, flexibility, upgrade options, maintenance, and the end of the term. 

Some advantages of used car leasing are lower monthly costs, stress-free maintenance, and you do not have to worry about resale. However, it might come with a lack of control, no ownership rights, and an excess mileage fee. 

Pros:

• Lower Monthly Costs

Compared to buying, you have to pay a low down payment when leasing a used car. You also have the advantage of opting for a more luxurious car than you can afford in terms of buying. In most cases, the rent payment in leasing is lower than the loan EMIs when buying a used car. 

• Vehicle Choice Flexibility

When your lease is completed, you have the flexibility to switch to a new car. You can choose car technology with the latest advancements with leasing every few years, which can be daunting when buying. 

• Stress-free Maintenance

Most of the repairs in leasing are covered as most new cars offer a 3-year warranty. As maintenance can be an overhead expense, leasing can make maintenance stress-free. 

• No Resale Worries

When the lease is over, you can choose to return the car. You might have to incur overage and end-of-lease fees but you do not have to worry about resale value. 

• Tax Deductions

A lease offers additional tax deductions when you use a car for business purposes. As depreciation and financing costs are part of each monthly payment, the Internal Revenue Service (IRS) offers tax benefits. 

Cons:

• No Ownership Rights

You have no ownership rights when leasing a used car. However, you have to pay the end-of-lease fee and you will have mileage restrictions as well. As you do not own the car, you might have to pay extra charges if you want to modify the vehicle. 

• Lack of Control

As you do not have any ownership rights, you cannot sell or trade the car. You will have to get a new lease after expiration and even make monthly payments. 

• Fees and Other Costs

Your lease contract includes additional expenses for overuse mileage, excess wear and tear, and any modifications. You might also have to pay a fee when the contract ends for car cleaning. You might also pay for any accidents not covered by the gap insurance in your lease. 

• Limited Vehicle Choice

If your lease is not completed, you cannot switch to another car. You will have to adhere to the limited lease options and vehicles.

When buying a used car, you have complete control over the ownership rights. Once the loan is paid off completely, you have the right to sell or make modifications anytime. However, you might face depreciation if you buy a car for investment purposes, as a car loses its value with time.

Pros:

• No Restrictions

Unlike leasing, you have a complete ownership title. You do not have to worry about mileage fees, end-of-lease fees, and wear and tear. You can opt for maintenance and services as per your preferences. 

• Complete Control

You have complete control over your car such as for customisation and modification. You can also sell, trade, or keep the car until the loan is completely paid off. 

• Financing Options

Whether buying a new or a used second-hand car, you can get a loan. You can get up to 100% loan value of your car, and you can make repayments in affordable EMIs. 

• Tax Deductions

If you are using the car for business purposes, you can be eligible for tax deductions as per the IRS. To redeem tax benefits, you must keep records to support your filings. 

• Long-Term Costs

Buying a used car is overall cheaper than buying a new one. Also, you can keep the car for as long as possible, unlike car leasing. 

Cons:

• Depreciation

After buying a car, it slowly starts losing its value. The resale value of the car after some years of usage can decrease, acting as a disadvantage if the car is for investment. However, if you keep the car for years, the resale value is not worth worrying about. 

• Driving Costs

The cost to own a car, maintain it, and operate it is increasing. This includes the overhead costs for fuel, insurance, maintenance, and more. 

• Interest Charges

If you are buying a car on loan, you will have to pay interest charges. Depending on the interest rate you opt for, you might have to pay more than the actual cost of the car. However, the interest rate can be lowered depending on factors such as repayment tenure, credit score, and loan amount.

Several factors influence car lease pricing, including mileage limits, lease duration, initial payment, residual value, and rent charge. The factors are detailed below:

• Sale Price

The sale price is negotiated with the car owner in the same manner as during a vehicle purchase. This impacts lease pricing and terms.

• Lease Duration

The total number of months for which the car is leased determines the lease duration.

• Mileage Limits

Mileage limitations affect lease terms and pricing. Most leases allow 12,000 to 15,000 miles per year.

• Residual Value

The depreciation cost at the lease’s end is calculated. This amount needs to be paid to purchase the car after the lease period.

• Initial Payment

An initial payment is required when starting the lease, followed by regular monthly payments.

• Rent Charge

The agreed rent payment is made each month until the lease term concludes.

• Taxes and Fees

Additional taxes and fees in the lease agreement affect the overall monthly cost. 

When purchasing a used car with a used car loan, several factors influence the price and loan value. These include car age, mileage, credit score, loan term, and down payment. Here are the details:

• Car Age and Model

The car's value and the loan amount depend on the model, variant, and age. An older car model requires higher maintenance and repair costs.

• Mileage

The car’s resale value is affected by its total mileage. A lower mileage increases the resale value and indicates less wear and tear.

• Credit Score

A used car loan is provided based on the applicant’s credit score, affecting repayment terms and interest rates. A lower credit score results in higher interest rates and a reduced loan amount.

• Loan Term

A longer loan term lowers monthly payments but increases the total cost due to accumulated interest.

• Down Payment

A larger down payment decreases the total loan amount and reduces the monthly instalment burden. The size of the down payment significantly impacts the overall purchase.

Leasing a used car offers cost-effective benefits but provides lower flexibility and limited vehicle options. As purchasing a car requires an upfront payment and a long-term commitment, leasing is preferable if you are not prepared for this financial obligation. 

Since lease payments are lower compared to loan repayments for purchasing a car, it helps in managing your budget more effectively. Owning a luxury car can involve additional expenses and higher maintenance costs, increasing overall financial commitments. 

Leasing allows access to a luxury car for personal or business purposes while maintaining affordability through manageable monthly payments. However, leasing comes with mileage restrictions, and full ownership rights are not provided.

Complete control over ownership, driving, and maintenance is possible only when you purchase a car. Leasing imposes limitations due to mileage restrictions and additional charges. Wear and tear concerns are reduced when buying a second-hand car. Selling, trading, or keeping the vehicle remains entirely at your discretion. 

Additionally, selecting a car based on personal preference is more flexible. In terms of financial planning, obtaining a used car loan provides full ownership while ensuring better cost management. A used car loan is available on Bajaj Markets, offering financing of up to 100% of the car's value.

When leasing or purchasing a used car, it is necessary to calculate depreciation and taxes. The following are key factors to consider when acquiring a second-hand vehicle.

Assuming the on-road price of the used car is ₹13 Lakhs and the lease period is five years, the tax benefits have been accounted for. The resulting per-month cost of leasing the vehicle is as follows. 

Comparing the per-month cost of owning and leasing a used car, ownership is more cost-effective than leasing. Leasing involves mileage and other restrictions, whereas buying allows unrestricted use. Among car lease vs car loans for used cars, you can choose the one that fits your needs. 

With this comparison calculation, you can make informed decisions about the costs you incur when leasing or buying a second-hand car. To buy a car on loan, you can apply for a used car loan from Bajaj Markets, covering up to 100% of the car's value. 

Lenders on this marketplace offer competitive interest rates, flexible repayment tenures, and various other benefits.