Car leasing: pros and cons

The car leasing market has been booming in our country for several years now. Businesses aren't the only ones taking part en masse: more and more individuals are choosing to lease rather than buy a car.
What forms of leasing are there?
What are the advantages of leasing compared with buying a car outright?

Operational and financial leasing

There are two types of leasing: operational and financial.

Operational leasing

Operational leasing is the most common in Belgium:

• The car is rented together with additional services.
• The lessee (the person using the vehicle) pays a fixed monthly amount, and the car remains the property of the leasing company.
• The leasing company covers all the costs (taxes, insurance, etc.).
• The leasing company covers all the services included in the leasing contract (maintenance, assistance, etc.) as well as the full administrative management.
• The leasing period ends after an agreed length of time (usually 3 to 4 years) and/or after reaching a certain number of kilometres (e.g. 100,000 km).
• The lessee often has the option to buy the car at its residual value at the end of the leasing period.

Financial leasing

Financial leasing is less common:

• The car is usually rented over a fairly long period (on average 2 to 5 years).
• The user of the vehicle handles the management and administrative formalities themselves, as well as arranging any additional services.
• At the end of the leasing period, the user will be able to buy the car back at a favourable price.
• Financial leasing is therefore more a form of purchase by instalments, allowing the user to buy the vehicle back at a relatively low residual value at the end of the lease.

The advantages of leasing

• Monthly leasing costs are fixed. So you know exactly what to expect.
• Peace of mind: you're freed from the management, administration and costs, which are handled by the leasing company.
• You can choose a new car model roughly every 2 to 4 years without having to worry about reselling it.
• Insurance is included in the monthly amount you pay with operational leasing. If you opt for financial leasing, you'll have to cover all the costs and risks yourself, and therefore bear the cost of insurance that you choose yourself.

The disadvantages of leasing

• Relatively high fixed monthly instalments, particularly with operational leasing including many services. This option isn't therefore recommended if you only make limited use of your car.
• Additional costs may be added to the bill (e.g. if you exceed the agreed number of kilometres).
• The vehicle you return must be in excellent condition, otherwise you may have to pay extra charges.

Buying a car outright

A few advantages of buying a car outright

• Buying a car lets you find the most attractive financial solution for the vehicle you're interested in, especially if this purchase is made with full knowledge of the facts.
• You enjoy full ownership of the vehicle, have no restrictions on its use (a sense of freedom) and can resell it whenever and however you like (at an attractive price).

A few disadvantages of buying a car outright

• You have to handle the financial side of your car yourself, both for its purchase (possibly paid in instalments) and for other costs. Note: if you decide to finance your vehicle with a loan, be aware that most of these cover up to 110% of the amount (or even 120% with some banks). (See here the comparison table between banks.)
• The very rapid loss of value of the vehicle from the moment it's put into use.
• You have to arrange insurance yourself. Compare all the offers carefully and choose what best suits your situation.
• You have to cover all the costs yourself (insurance, assistance, maintenance, etc.)

This article was written by TopCompare in collaboration with Redion.