To Buy Or Lease A Car: What Is the Best Choice For You?
With the rise of car leasing services in Malaysia, consumers now have another option when it comes to getting a new vehicle. If you’re unfamiliar with it, leasing involves paying a monthly fee for a car for up to three years, and after the lease is over, having the option to either return it and end your lease, buy the car and own it, or choose another car to lease.
While it sounds attractive, leasing a car may not be for everyone. So if you’ve wondered whether you should buy or lease a car, here’s a guide to help you make an informed decision.
How does leasing a car work?
Car leasing allows you to drive a brand-new car for a specific length of time, usually between one and three years. Most Malaysian car leasing companies require you to pay an upfront fee before collecting the vehicle. Then, you pay a monthly fee over the duration of your lease.
The monthly fees cover everything including the cost of leasing the car, road tax, insurance, and maintenance. Over the lease period, you use the car just as you would any car you own but you may have a limit to how far you can drive a month, depending on the leasing option you chose. At the end of the lease period, you can either return the car and lease a new one, or purchase the car for the guaranteed future value (GFV) that should be defined in your lease contract.
Pros & cons of leasing & buying a car
When deciding if you should lease or buy a car, it’s important to look at its pros and cons. Here are the main pros and cons of both options to help you decide.
Pros of leasing a car
- Potentially lower overall cost: The monthly payments for leasing a car in Malaysia are higher than a typical car loan. However, as the leasing fees cover everything including road tax, insurance, and maintenance, you can potentially save money. This is especially true, for instance, if you lease an expensive continental car and it requires major repairs.
- Maintenance is taken care of: The leasing company is responsible for the scheduled maintenance of the vehicle during the lease duration. Therefore, you don’t have to take the car to the workshop for servicing or repairs. Also, the warranty usually covers most of the cost.
- Drive a new car every few years: After the lease is up, you have the option to purchase the car or return it and pick a new one to lease. If you enjoy driving a new ride with the latest technology, you can do so by leasing.
- No resale worries: Since you can just return the car after the lease is up, you don’t have to worry about selling it. You only have to pay any end-of-lease fees, including for abnormal wear and tear and excess mileage.
- Cleaner credit score: By leasing a car, you won’t have a car loan under your name and that means you’ll have a cleaner credit score. This is great if you already have several debts to your name and plan to apply for a loan in the near future.
- No long-term commitment: Leasing means you won’t be tied down by a long-term loan. That makes it a better choice if you’re an expat who’ll only be in Malaysia for a few years or if you have future plans that will affect your ability to service a car loan.
Cons of leasing a car
- You don’t own the car: One of the biggest drawbacks of leasing a car is that you have to return it when the lease expires unless you choose to purchase it. If you decide to return it, you won’t have an asset in your possession.
- Never-ending monthly payments: If you decide to keep switching cars, you’ll end up always paying to rent a car. At a certain point, you’ll spend more on leasing a car than you would if you purchased one and kept it long-term.
- Monthly mileage restrictions: Most car leasing companies have mileage restrictions on the car for the duration of the lease. However, they may also offer additional monthly mileage packages that you can pay for to get additional or unlimited miles on the car.
- Wear and tear fees: When you return the car after the lease is up, you’ll have to ensure that it’s in good condition. Otherwise, you may be charged for excess wear and tear. You may also be charged additional fees for excess mileage and unapproved modifications, if any. If you decide to end the contract early, you might need to pay an early termination fee.
Pros of buying a car
- You own the car: When you buy a car, you own it outright and it becomes an asset, albeit a depreciating one. You’ll also form a long-term bond with your car – something you can’t really do when you lease it. You can keep it for as long as you want and sell it at any time, or even give it to a family member. And if you do decide to sell it, you can still get some money back.
- Lower monthly payments: Even if you take a five-year loan on your car, you would have lower monthly payments compared to if you leased it. This, of course, doesn’t include servicing and paying for unexpected major repairs. However, most cars you buy are covered by a warranty, including CARSOME Certified cars, which have a one-year warranty.
- You have total control: Since you own the car, you can drive it as much as you want and modify it in any way you see fit, though keep in mind some modifications may void your warranty.
- No special fees: Aside from unexpected repairs, there are no special fees when you buy a car. You won’t be charged for excess mileage, additional wear and tear, or if you need to let go of the car early for any reason. Some used car dealers may charge additional fees but at CARSOME, we’re always upfront and don’t charge any hidden fees.
- Cheaper insurance: When you buy a car, the insurance goes down every year provided you don’t claim from it. When you account for the reduced insured value of the car and the no-claim discount (NCD) on the insurance, you can save quite a bit on insurance the longer you own your car.
Cons of buying a car
- Depreciation: New cars generally depreciate between 15 to 35 percent after the first year. If you like to change your car every few years, this is a disadvantage. However, if you plan to keep your car for years, its depreciation shouldn’t matter as its service to you will most likely make up for it. On the other hand, if you decide to buy a used car, it would’ve already gone through the worst of its depreciation.
- You need a bigger down payment: Purchasing a car requires a down payment typically amounting to 10 to 20 percent of the car’s value. The upfront fee of leasing a car in Malaysia is usually significantly lower than that.
- You’re responsible for repairs: When you own a car, you’re responsible for taking it for its scheduled maintenance and for any unexpected repairs. Outside of the warranty period, you’ll have to bear the costs on your own.
- More effort to upgrade your car: Upgrading a car you own involves more work as you’ll need to look for a suitable buyer or trade it in. That being said, pre-owned car platforms such as CARSOME can take your car at a reasonable price and even handle all the paperwork for you.
- Restricted technology: Unless you upgrade your car after a few years, you can’t enjoy the latest technology and features. Until you upgrade, you’ll have to deal with dated styling and safety features.
|Ownership||No ownership – you pay to drive the car for a set timeframe.||You own the car and can keep it for as long as you want.|
|Monthly Payments||The monthly payments are usually higher than loan payments as the fees go towards maintenance, insurance, etc.||Lower monthly loan payments but these don’t include maintenance and other additional costs.|
|Customization||You’re not allowed to customize a leased car as you have to return it the way you received it when the lease ends.||You can customize the car to your heart’s content since you own it.|
|Maintenance||The leasing company usually handles all the maintenance and repairs.||You’re responsible for maintaining and repairing your own car.|
|Depreciation||The leased car doesn’t depreciate but as you’ll have to return it, you won’t have any asset to your name.||The car depreciates in value but you’ll still own it at the end of your loan tenure and you can decide to sell it.|
|Additional Fees||There might be additional fees to pay when you return the car such as for excessive wear and tear.||There are no additional fees when you buy a car other than unexpected repair costs.|
|Early Termination||Ending your lease early will incur a fee which should be detailed in the leasing contract.||You can sell your vehicle at any time, though you might need to top-up a bit of money to settle any loan balance.|
|Long-Term Cost||The long-term cost will eventually surpass that of buying a car if you keep renewing your lease.||There’ll be no more monthly payments once you settle your car loan.|
|Mileage||There’s usually a mileage limit on a leased car but you can pay extra for a higher limit.||You can drive as much as you want, though a lower-mileage usually contributes to better resale value.|
|Technology and Features||Since you have the option of upgrading your car every few years, you can always drive a new car with the latest features.||You’re restricted to your current car’s technology until you purchase a new car.|
So, should you lease or buy a car?
If you’re unsure whether you should lease a car in Malaysia or just buy one, you first have to assess your goals, finances, and driving habits. Think about how much you can afford, how much you drive every month, and also if you want to own a car long-term.
Here are some scenarios where you may want to consider leasing over buying a car.
- You want to upgrade your ride after every two or three years and don’t want the hassle of settling your car loan and buying a new car.
- You want a short- to medium-term car that you can drive without worrying about the upkeep and return when you no longer need it.
- You’re an expat who has difficulty securing a car loan, or you’ll only be in the country for a few years.
And here are reasons to buy a car instead of leasing one.
- You want a long-term vehicle and prefer to own it yourself.
- You plan to buy a reliable car with affordable maintenance, repair, and spare part costs, such as cars from Perodua, Proton, or Toyota. In this case, you’ll probably save a lot more thanks to the car’s reliability.
- You plan to do a lot of driving be it for work, vacation, or e-hailing.
Whether you decide to buy or lease a car, make sure you’ve considered your needs and lifestyle. That way, you’ll have an arrangement that truly works for you.