The rental v buy decision for a car does not come with much of a comparison headache. Apparently, the terms for leasing and rental for cars are also the same. However, both these terms auto industry are quite different. Both lease and rent a car, offer different pros and cons to both parties.
Let us first take a summarized look at the key differences in both types of contracts.
|Parties in Contract||Lessor and Lessee||Owner and Renter|
|Maintenance and Damages||Lessee||The owner or the car dealer|
|Ownership of the Car||Option to buy for the lessee||No option to buy for the renter|
|Insurance||By Lessee||By Owner, or Dealer|
|Credit Score||Requires a credit check||Does not require a credit check|
There are several factors that you should consider before deciding on a car rental or a lease. The costs and responsibilities of both contracts vary. Also, most car dealers offer car rental on regular terms, the car leasing is not a common option with every dealer.
Here are our top 5 factors to consider for a car lease v rent decision.
1) Requirements in Lease V Rent a Car
Getting a car for rent is simple. The car dealers will usually ask for a driver’s license, credit card, and clean driving history. There are no longer credit check inquiries or other formalities with a car rental contract.
As a car lease is usually signed for a longer period, it requires more documentation. A car lease contract will require the following documents:
- A driver’s license
- A good Credit Score
- An auto insurance
- Proof of income to make long-term payments
- A guarantor or a consignor in some cases
Car rentals work for a few days or up to a few months at most. The lease contracts are made for 1 to 4 years. The car dealers will require important document verification as well as higher credibility checks.
2) Credit Score Requirements
Car dealers remain much more flexible with rental than in leases. A lease is a long-term contract. The dealers usually require a higher credit score and overall higher creditworthiness with a lease contract.
A good score is required for a lease contract. Car leases are for newer models usually, so the dealers look for extra protection for the new car model. Some car dealers allow leases with bad credits too. The monthly lease and insurance costs will be higher for bad credit customers though.
Also, if you don’t have a good credit score, you may need a consignor. The down payment and other costs rise with bad credit too.
3) Insurance and Damages
The insurance costs are covered by the car dealer for a rental contract. The renters do not pay for any insurance and hence for the damages with cars.
The car lease contracts require the lessee to pay for an auto insurance policy. Auto insurance is mandatory by law as well. The insurance costs and damage covers are lower with rentals than a car lease contract.
4) The Total Cost
If we talk about the monthly payments, the rates with car rentals will be higher than lease contracts. But that’s not as simple as it looks. There other factors that affect the total costs with lease or rentals.
With a car rental, the renter will pay for:
- Monthly or daily rent payments
- Fuel for car
And that’s it.
With a car lease contract, the lessee will pay for:
- A down Payment – Higher down payment with bad credits
- Monthly lease payments
- Fuel for car
- Auto Insurance
- Car maintenance
Practically, the total cost would depend on how long you need the car to drive. Also, make sure to consider some hidden costs like over-mileage costs that are common with rent and leasing.
5) Ownership of the Car
There are no ownership rights with both rent and lease contracts. A car rental is a short-term contract for a few days or months that does not grant ownership rights. Normal car lease contracts also do not come with buy options too.
However, many car dealers, leasing agencies, and banks offer an option to buy the car at the end of the lease contract. The option adds flexibility and choice to buy the car after the lease expiry at the market price. There is no legal binding for both parties though.
Car Lease V Rent, Which One Is the Right Choice for You?
If you are looking for short-term car usage, a rental is your go-to option. If you are indifferent about buying a car, the lease contract may be your best bet. Lease a car will be your right choice with good credit and long-term usage.