DownTown Car Rentals - Why rent a car?

Leasing is usually a better alternative for an individual who intends to use the vehicle for a few years only. That is because he only pays for the use of the car and not the entire value of the vehicle.

While most car ‘buyers’ head straight to the finance company for Hire Purchases, there is an alternative that promises to produce less headaches, and might be a cheaper arrangement.

In the Singapore context, car ownership is a misnomer at best. After all, with loans stretching to nine years 11 months, and necessary scrapping before 10 years if the ‘owner’ chooses not renew the COE, it is entirely plausible that the log card - that deed of ownership - will never be in the hands of the so-called “owner’ but the finance company.

Most of us are actually mere ‘hirers’ of cars. Yes, the car is registered in our names, but we never really possess it if we do not hold on to the cars till the loan is fully repaid.

Yet we have the responsibilities of ownership. If our bosses give that handshake - golden or otherwise - we might find we no longer able to ‘own’ that car since servicing the installment becomes very burdensome. At that point, there are issues of disposal and we also need to absorb any loss in value.

If COE values plummet and the resale value value of the car drops, these losses might be so great that we end up paying the finance company when we sell off the car. It has resulted in a paradox where car ‘owners’ cannot afford to sell off their car!

There is an alternative that allows you to pay for the car you use in the long term and yet not carry the risk of inordinate losses.

This arrangement is called “leasing”.

Leasing is an alternative that is highly popular in the West. Though hire-purchase is the car financing instrument of choice in Singapore, leasing is set to grow in popularity, especially among companies trying to simplify.

HP vs Lease
	HP	Lease
Purchase Price: $204,000
Down payment (5%)	$10,200	Nil
Monthly payment	$3,634	$3,200
Payment after 60 months	$218,040	$192,000
Road tax, insurance, maintenance for 5 years	$32,700	Nil
Total payment after 5 years	$260,940	$192,000
Value of car on disposal	$58,000	Nil
Total Cost	$202,940	$192,000
> In this financial model, a BMW 520i is purchased for $204,000. > The buyer can opt to finance via HP or leasing. > The period is 5 years. In other words, we compare a five-year lease with HP over 5 years when the car will be fully paid up. > HP interest rate is 2.5%.

There are a dozen or so leasing companies in Singapore, and the market for leasing has been relatively robust, especially among the expatriate community.

With leasing, the customer- or lessee- chooses the car of his or her choice. Having chosen the car, the lessor steps in to buy the car and leases it to the customer. The lease agreement will specify the term of the lease - anywhere from 3 to 5 years - and the lessee only needs to make the monthly payments to the company, and pay for the petrol.

Issues like road tax, insurance and even maintenance, are settled by the lessor. A replacement car is even provided when the car is in the workshop.

The customer also gets to change his car every 3 to 5 years for a newer model and does not have to get entangled with the mess of disposing of the old car.

Leasing makes a lot of sense, especially for companies. From the financial point of view, a leased car is an expense. Also, a lease car is much easier to administer for any company, says an industry expert.

Also, the cost is written in the books as an expense rather than taken up as an asset. This might not seem like a lot of hassle, but it does have tax implications as well as greater complexities when the car is sold.

The individual can also opt to lease. While there are not the tax advantages that companies may enjoy, leasing allows the individual to pay for the car according to use and caps risk associated with loss of value of the assets.

Should the individual come into any financial difficulty, a lease agreement is easier to terminate. There would be a cancellation fee, of course, but the real joy here is that the lessee would have no problem disposing the car.

Leasing: Pros and Cons
Pros	Cons
Little or no down payment	No equity or ownership
Risk reduction	Marginally more expensive
Lower total cost of use
Change a brand-new car every 3 to 5 years
No hassle in disposing off the vehicle
Option to buy over the vehicle after the lease period

What about actual cost comparisons? Is hire-purchase realistically cheaper than leasing or is it the other way round? Costing models provided by DownTown Travel Services suggests that while leasing is marginally more expensive on the outlook, in many cases it can be cheaper by about 5 to 10 per cent. You can contact DownTown Sales Managers and work out leasing details with them.

Still, the flexibility of a lease, and the elimination of risks from capital loss and other contingencies, as well as the convenience of ownership, make it a financing worth considering.