The debate on whether it makes more financial sense to purchase a vehicle outright, be it through traditional financing or to lease it over a long period, could have us in mixed opinions any day of the week. We debunk the differences with practical scenarios.
Most consumers are quite familiar with the traditional vehicle purchasing method - you apply for financing, get approved for a certain loan amount at a certain interest rate, and ultimately, your monthly installment is calculated and indicated to you. As a result of financing a vehicle, the bank would require you to take out insurance on the vehicle, of which the premium would be added to the monthly cost of ownership. We would refer to these as your fixed monthly costs when it comes to financing your vehicle over the period.
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Other costs, such as maintenance and fuel, however, still need to be considered. However, these are a little harder to put a fixed cost on, as they may vary for each individual based on the overall usage of their vehicle.
We'll begin with a breakdown of purchasing a brand new Toyota Starlet Cross XR MT, which is priced at R339,300. Financing this vehicle over 60 months, at an interest rate of 13,50%, with no balloon payment and a 10% deposit, would work out to a monthly installment of R7 027. Insurance also needs to be taken out on the vehicle, of which this author got a quote for this specific vehicle for R2 404. Rounding up the minimum monthly cost of ownership is one full tank of fuel, 37L costing R779 to be exact, bringing the total monthly cost to R10 210.
Looking at a vehicle leasing scheme, such as Toyota's KINTO ONE, which offers tailor-made vehicle mobility with the peace of mind of limited liability cover, service and maintenance, and a stolen vehicle recovery unit. Taking up the same vehicle through KINTO ONE means that you pay a monthly subscription of R6 503, and with a full tank of fuel, the total monthly cost through KINTO ONE comes to a total of R7 282. This essentially represents a saving of R2 928. It's important to note, however, that the latter option comes with mileage restrictions, and in the case of this scenario, the mileage would be capped at 1000km per month. The up-side, however, is that one may tailor-make their terms to their preference. At the end of the contract period, an individual may simply return the vehicle and take up another one.
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The influx of modern vehicle mobility solutions is steadily growing popular in South Africa, and the fact of the matter is that numbers (as shown above) don't lie. They point to which solution makes more sense financially while removing the pain of depreciation.
