There are different ways of owning a car, and one such way is through vehicle leasing in Nigeria. Leasing a car makes more financial sense, especially if you cannot afford to pay for a car outrightly. This article explains what a lease is, how leasing a car works in Nigeria and the differences between an operating lease and a finance lease.
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What is a Lease?
A lease is a contractual agreement between two parties: the lessor (owner or financer) and the lessee (you). The lessor grants the lessee exclusive rights to possess a specific asset, which could be a vehicle, equipment, land, or household appliances, over an agreed period and conditions, in return for specified periodic rental or lease payments.
An operating lease is a lease that gives you exclusive rights to use and possess a car over a particular period of time, without any transfer of ownership rights of the vehicle. During the period of the lease agreement, you make rental payments (usually monthly) for the use of the vehicle. At the end of the agreed period, you return the vehicle to the lessor or apply for a new lease.
A finance lease gives you exclusive rights to use and possess a vehicle over an agreed period, dependent on your agreement with the lessor. The lease requires you to make an advanced payment for the cost of the vehicle, which is relatively a small percentage of the asset’s cost. The lessor takes up a larger percentage of the cost of the vehicle.
During the agreed period, you make fixed monthly payments, and the ownership of the vehicle remains in the name of the lessor until you complete the final rental payment before ownership of the vehicle can be transferred to you.
Which Lease is Best for You?
If you wish to own a car and not just possess a car, the best lease type for you as an individual will be a Finance Lease. However, for a company, an operating Lease may be the better option. This is because an Operating Lease allows for flexibility in terms of upgrading to newer vehicles, while a Finance Lease ties you down to a specific vehicle for a longer period of time.
It’s important to note that with both lease types, the lessee is responsible for the maintenance and upkeep of the vehicle during the lease period. Additionally, if you decide to end the lease agreement before the end of the agreed period, there may be penalties and fees involved.
Benefits of Leasing a Car in Nigeria
Leasing a car in Nigeria comes with several benefits, including:
- Access to a wider range of vehicles: With vehicle leasing, you have access to a wider range of vehicles that may be outside your budget if you were to purchase outright.
- Lower upfront costs: With a lease, you are only required to make an initial payment (usually a small percentage of the vehicle cost) and monthly payments, as opposed to a one-time large payment when purchasing a car outright.
- Lower maintenance costs: Depending on your lease agreement, maintenance costs may be included in your monthly payments, reducing the burden of unexpected repair costs.
- Tax benefits: For companies, leasing a vehicle may come with tax benefits such as deducting lease payments from taxable income.
Vehicle leasing can be a great option for individuals and companies looking to own a car without the financial burden of a one-time payment. Before deciding on a lease agreement, it’s important to understand the different types of leases and their pros and cons.
Working with a financial advisor can also help you make an informed decision on the best option for your specific situation. You can access Rosabon Financial Services for different leasing solutions.