by Mahshid Zamani

From James Bond's mighty Aston Martin DB5 1964 to the dazzling platinum Cadillac XLR-V 2006, fancy cars have always been fantasized about. However, most people cannot afford to own such a luxury, either because of the limited loan options available and or sizeable down payments. Does this mean that one has to give up one's dream? The good news is that as long as you are not among those people obsessed with owning something while using it, leasing can make your dreams come true.

1. Leasing a vehicle means hassle free driving-no maintenance, insurance, or registration with 24/7 mobility. If there is a mechanical breakdown or accident, a replacement vehicle is sent to you anywhere in the UAE. That's probably the biggest benefit of leasing- looking for taxi's, especially at odd hours is eliminated.

2. Insurance companies in the UAE, do not include car rental or a replacement vehicle when you have an accident with the vehicle that you own. If your car goes in for accident repairs and you have no option but to hire a car, you will have to pay from your own pocket. Leasing takes care of such situations at no additional expense to you.

3. Leasing is also convenient for expatriates leaving the country. Automobiles are an asset and like any other significant asset, there is the time-consuming hassle of selling the vehicle. This can be especially stressful if there are time constraints, when one has to take up another assignment somewhere else.

4. If you are here on a short term contract, leasing makes more fiscal sense. The highest depreciation for a car occurs in the first 12 months when you purchase the vehicle, so leasing is probably the wiser option.

5. Its great for your budgeting, there is a fixed outlay every month and companies that prefer not to keep assets in their balance sheet in order to reduce capital expenditure, would also prefer to lease instead of owning the car.

6. Thrifty has a very convenient airport location and also offers their long term lease customers ‘drop off' facility at the airport. Senior business customers and frequent travellers can leave their leased vehicle with Thrifty at the airport to be taken care of by Thrifty. The company ensures the car is spotless and waiting for them on their return.

7. Thrifty can offer you advice as to the most suitable car for your requirements, which is a helpful service especially for those customers who are new to the UAE and unfamiliar with the vehicles that are available in this part of the world.

CORE BUSINESS PREFERENCE
According to Aswini K. Borkotoky, Managing Director of Diamond Lease in UAE, "It is for a simple reason that major companies want to concentrate their time and resources in the core business they are involved in. It saves them a lot of money that goes into the purchase of the fleet." Also the worry of maintenance makes outright purchases of vehicles an undesirable proposition. And most importantly the flexibility in the leasing option tips the scale in its favor. Moreover, easy modes of payments make companies like ours a safe investment option. Considering the residual and resale value of the vehicles the outright purchase option takes a beating.

The major advantage for clients is in keeping a steady control on the cash, since leased vehicles have a fixed cost. “If the company buys a vehicle, everything from insurance, service, maintenance and the cost of providing replacement vehicles and staff are variable costs that cannot be budgeted. Leasing in contrast, means a fixed monthly pay-out, thereby offering strict control of expense,” he explains.

Automotive Leasing in the Emirates is establishing its credibility rapidly. The concept of leasing is – Now with the leasing business in the Emirates fast talking root, the concept of car leasing is finding itself with an increasing number of converts.

With the promotion of Dubai as an International Trading, shopping and tourism destination, the number of long-staying guests is growing, which means increased business for car rental companies.

Leasing offers tax benefits in other countries, since it is an expense, which is tax deductible. “As the market matures, more companies will turn to leasing”. It is not just a question of economic sense; it is also an incredible convenience considering the transient nature of the expatriate lifestyle.

Mr. Aurelieno Martins, business development manager of Hertz in Dubai, believes that no initial cost and low monthly payments is the main reason for the increasing number of businesses that prefer to lease cars rather than purchase them. “According to our statistics, the number of companies who are leasing cars has risen by 60%”, he says. “For new businesses in particular, keeping the money in their own hands (cash flow) is very important, so they prefer to drive a decent car at a four figure monthly payment and no down payment at all.”

This seems to be the general trend all around the globe. According to statistics published by the Bureau of Transportation Statistics in the US, from 1990 to 2004, new car vehicle sales increased by 2.3%. During that same time, new car leases increased by 82%.

With a lease, you are essentially renting the car for a fixed number of months, (typically 36-48 months) and you pay for the depreciation of the value of the car only in the period that you use it (base monthly payment), plus the interest due to paying by installments (rent or lease charge). Thus, the key factor that determines your monthly payment when you lease a car is the difference between the vehicle purchase price and its predetermined value at the end of the leasing contract (residual value).

In effect, leasing a car rarely puts the lessee in an upside-down position.

Though leasing may seem complicated and confusing, it is as easy as it can get. The leasing company can send a representative to your office with the car lineup available and when one catches your eye, you need to do nothing except sign the agreement. Everything else is on the lessor, from registration to insurance and maintenance. This is another significant bonus of leasing a car: There is no need to spend time and energy to find the right insurer or mechanic. If anything happens, the lessor has to take care of it and also provide you with a replacement car in the meantime at no additional cost.

Most leasing companies also have good packages for leasing more than 5 vehicles and are ready to offer a better rate if that is the case. Another factor affecting the monthly payment is the duration of the lease. This means the longer you need the car the lower your rate will be.

The downside of leasing a vehicle
When leasing a car, there is no end to your monthly payments, and you only have it while you are paying for it. If you do not like that prospect, then leasing is probably not the right option for you.

As long as you lease, you never really own your car. However, depending on the type of lease, when the lease term is up, you either hand the keys over to the car dealership and look for another vehicle (close-end or walk-away lease), or finance the remaining value of the vehicle and go from making lease payments to loan payments (open-end lease). Your lease type is generally agreed upon in the contract agreement.

The mileage restriction of leasing sometimes poses another drawback. If you drive a great deal per year, consider instead a loan or an open-end lease. Most leases restrict your mileage to 15,000 miles (or sometimes even lower at 12,000) per annum. If you go over your allotted mileage, you pay extra at a rate of about 15 cents for every mile over your limit for regular cars, and 20-25 cents for luxury cars. Nonetheless this can be resolved, since these days companies also offer unlimited mileage agreements. For instance the market currently offers a flat rate of Dh 2700 per month to lease a Honda Accord and you can drive it as long as you like.

Another setback of leasing a car can be the higher cost of insurance. Insurers usually require higher coverage costs for leased vehicles. However, depending on your age, driving record and place of residence, that additional cost may be nominal.

Further, when leasing a new vehicle, you, instead of the owner/dealer, pay for the most expensive years of a vehicle's life in terms of both depreciation and insurance. The amount that you are charged for is the purchase price minus the residual value of the car as described above. The amount of the salvage-residual-value that the dealer includes in your contract directly impacts your monthly payment.

When leasing, it is important to consider a vehicle that best retains its value rather than one with a high depreciation rate. Unfortunately, there are dealers who try to shift more of the depreciation cost onto your side by embedding an unfairly low residual value.

Also, when signing a lease contract, be aware of any clauses regarding additional charges for excessive wear and tear or “above-average costs for additional mileage” an executive with experience of car leasing warns. You want to minimize any unexpected costs as much as possible.

Benefits of buying a car
By far the most significant benefit of buying a car is that you actually own the vehicle when the loan is paid off. Implied in this is that one day you can be free of car payments, and the car is yours to sell at any time. You are not locked into any type of fixed ownership period. If you plan to stay in the UAE for at least a few years then procuring a vehicle will probably make more sense as you will have an asset in your books at the end of the day.

Also when you buy a car, the insurance car limits on your policy are typically lower than if you leased. Finally, by owning a car, you are free to rack up mileage without economic penalties or restrictions.

Disadvantages of buying a car
There is an old myth that by purchasing a car one always wins because it becomes an asset with equity. Yet, the truth is that a car cannot be considered an appreciative asset.

As soon as you drive your new car out of the dealership its value goes down drastically. On the other hand, like the monthly payments of a mortgage, monthly car payments are divided between paying principal and interest, and the amounts dedicated to each vary from payment to payment. Thus, in the first year the major portion of each payment goes towards interest rather than principal while the car itself depreciates most rapidly in that year (almost by 20-40%). This way the loss in equity is double: The price of the car has dropped, and the principal of the loan is still there. Obviously this leaves the owner very little equity in the car.

Generally speaking whether leasing or buying, economically it is always logical to choose a car that retains its value over time. This way, if it is necessary to trade in early, what is owed will most likely be paid off.

If a company needs only one car, purchasing is probably a good option, unless that car is a prestigious, expensive model. But if more than one car is needed, most people in the know would recommend leasing.