Leasing your motor vehicle is a relatively new concept in South Africa that is sparking a lot of interest. It’s effectively a long-term rental agreement with an institution offering the facility.
With leasing, you never own the car – you get to use it during the lease term, for a monthly fee. But you must return it at the end of the lease.
Owing to affordability issues, the majority of customers are opting to finance their cars over longer periods of time. This according to Simphiwe Nghona, executive head of Wesbank’s motor division.
Additionally, if you take out a 72-month (six-year) car finance contract, the break-even point at which you will be able to sell or trade the car in without making a loss is usually between 42 to 49 months into the contract. This creates further financial strain.
“We are seeing that clients, on average, want to change their cars every 37 or 38 months, which means there is a shortfall,” Nghona points out.
In other words, they are essentially leasing the car, because they never pay it off.
Despite this inefficient way of buying and using cars, leasing is still in its infancy in South Africa. Approximately five percent of consumers are now leasing cars, according to Keith Watson, managing director of car leasing firm Ariva.
Could this figure see growth as consumers realise that they are wasting money with what we dub Automotive Deficit Disorder (changing cars frequently)?
A wealth manager crunched the numbers to help answer this question.
“There are a few things you need to know,” says Dale Scorer, wealth manager at AlphaWealth. He explains, “at the beginning of the lease you need to select your annual mileage and it’s important you get this number correct as any excess mileage will be charged for.
“It is also exceptionally important that before entering into a lease agreement, you fully understand the terms, early termination policies and price calculations,” he reveals.
Dale’s numbers assume:
- New/used: New
- Car: Mercedes A 200 Automatic
- Cost: R437 452
- Deposit: 12.75%
- Lease rate: Prime
- Finance rate: Prime
- Proposed km/annum: 20 000
|36 monthly repayments of R5000||36 monthly repayments of R11 530|
|End of agreement options
Scorer explains that leasing tends to be a more favourable option if you are the type of person that owns a new car every 3 – 5 years, either before it is paid off or once you can use the trade in for a deposit on a new car.
However if you tend to be hard on cars, if you are ‘accident prone’, if you prefer owning a car debt-free, or put a great amount of mileage on your car, leasing is probably not for you.