Buying a Car with a Lease and a Personal Loan | OnCredit Sri Lanka

The Difference between buying a car with a Lease and a Personal Loan

Buying your first car is a dream for almost all youngsters around the world. Not only is it a symbol of freedom but it also affords a world of convenience when it comes to getting out and about, especially in Colombo. Not to mention it (sadly) is also an indicator of your social status. That being said, buying a car in Sri Lanka is far more complicated than it is abroad, starting with the exorbitant prices of both brand new and second hand cars. With a heavy vehicle tax of an astonishing 50-110% depending on the vehicle, the vehicle rates in Sri Lanka are probably some of the highest you will find in the world. You could probably purchase a luxury car abroad with the same amount of money you put into buying a small to medium sized vehicle in Sri Lanka. All in all, if you are seriously thinking of buying a car, it’s not going to come cheap by any definition of the word.

How can I buy a car in Sri Lanka?

How can i buy a car?

There are multiple ways you can fund your purchase of a car.

1. Purchase it outright

While purchasing a car outright makes sense in a number of situations, only very few people can afford to do this. Nowadays, you would need three or four million rupees to buy a second hand car in good condition, let alone a brand new one. Older vehicles in poorer conditions might be found at cheaper rates but expect these to come with many repairs. If you have saved up diligently for months or if you simply have the funds to buy a car outright, it is definitely the best way to fund your purchase. A family of adults might be able to jointly afford a family vehicle. The only instance where buying a vehicle outright doesn’t make sense is if you invest the bulk of the money you would have spent on the car and it generates better returns overall to offset any interest payments on a lease, loan or other method of debt financing.

However, the truth of the matter is that apart from the ultra rich, hardly anyone will be able to outright purchase a car using only cash.

2. Purchase it through a lease

Purchase it through a lease

The most popular method of purchasing a vehicle is arguably through a lease. A lease is an arrangement where a bank or finance company purchases the vehicle of your choice outright and hands it over to you for you to freely use as you pay back the entire amount over a mutually agreed-upon time period; the catch is that the vehicle is legally owned by the bank or finance company until you have settled the debt in full. If, for any reason, you are unable to settle the debt, the bank will reclaim the vehicle and use it to recover their losses. The main benefit of going for a lease is that you don’t need to put in a large portion of the cost by hand and you can own the vehicle outright.

3. Purchase it through a personal loan

Another way of financing the purchase of a car is through a personal loan. There are countless finance companies and banks that offer personal loans for this very purpose at very reasonable interest rates. The process of applying for a personal loan is generally slightly drawn-out; most loan applications require a comprehensive set of documents (everything from your educational certificates to letters from your employer confirming your salary and designation) and the amount that you can borrow depends heavily on various factors. You will likely not be able to borrow the entire cost of the car unless you provide substantial assets as collateral. If you have a poor credit score, you might face many difficulties in getting a personal loan; in this case you can opt for unsecured loan providers like OnCredit.lk who offer low interest rate loans with instant loan approvals.

The two most feasible methods of buying a car is usually leasing or going for a personal loan; the main differences between both are outlined as follows:

Personal Loans Leases
You might not be able to get a personal loan for the full value of the car and you will need to put in part of the cost by hand You might be able to lease the full value of the vehicle meaning you can get a car with little to no cash in hand
own the car outright from day one The bank or finance company owns the car until you pay off the debt
If you decide to sell the vehicle, you can use the money from the sale to settle the loan in advance.
If you decide to sell the vehicle, you can use the money from the sale to settle the loan in advance.

You have to pay a fixed amount for the duration of the term - it cannot be settled early

Collateral often required to get larger value loans No collateral required