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Car Leasing Explained

by anonymous

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Many dealers, in addition to selling used cars, offer cars on lease. When you lease a car, you do not own it. You only use it for the period of the lease. So the responsibility of maintenance and depreciation is not yours. Depending on the type of car you want to rent, budget and finances, you can choose the lease option that suits you best.

Personal contract hire

Under this type of contract, the EMI (equated monthly instalments) is based on the difference between the purchase price of the car and its resale value after the lease is up. You take the car of your choice and return it at the end of the lease period.

This is the most hassle-free form of leasing where you do not have to worry about insurance or maintenance costs and you can drive the car of your choice.

Personal contract purchase

Under a personal contract, you have the option to purchase the car or exchange it for a new one at the end of the lease period if you so desire. You will pay a non-refundable upfront amount and monthly rentals for the period of the lease.

If you choose to purchase, you will pay a guaranteed future value also called balloon payment. This amount is calculated at the time of leasing the car. If you opt to exchange, you will have to pay the difference between the price of the new car and the guaranteed future value.

This plan allows you to defer payment on the new car and you can refinance your car at the end of the lease period. Because of the purchase option, you can avoid incurring losses in case the value of the car is lower than the outstanding payments. Under such agreements, you will generally have to pay a premium for the comprehensive insurance.

Hire purchase

Under this contract, you pay an upfront deposit and monthly installments for a fixed period at the end of which you gain ownership of the car. The overall cost and EMI is calculated based on the cost of the car, the amount of down payment and the number of installments.

You can drive a car which you would not have considered for outright purchase. The car itself acts as a security, and you can easily get a loan for the purchase at a reasonable rate of interest. T

The overall cost of the car under a hire purchase agreement is lower although the EMI will be higher because of the interest load on the installments. Moreover, the lesser the number of installments, the higher will be the EMI. This is the best option if you want to buy the car of your dreams which you cannot otherwise afford.

Car leasing is therefore a better and cheaper option as compared to purchase of a new car. You can even opt for a hire purchase agreement for used cars.


For more information about used cars, please visit

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