Question

One of the final topics we will cover involves short term and long-term borrowing options. As interest rates are rising, this is a good time to consider cost of borrowing and pros and cons of leasing. Rent vs. purchase a home; lease vs. purchase a car. Please discuss the advantages and disadvantages of both.

Answer 1

If the interest rates are rising, it would have been better to own than to get asset on lease or rent.

When the cost of borrowing is low, that means there is a certain element which is included in the cost of borrowing, is the cost of interest and when the interest rates are lower, borrowing and then getting an asset on lease or getting an asset on loan would be more beneficial for the the consumer, but when the interest rates are rising, there is an inflationary situation and it would not be advantages to get an asset on lease or rent because the interest rate associated with the total cost of the asset, will also increase leading to the increase cost of borrowing, and that would lead to higher payment schedule for the consumer.

At the time of increasing interest rate, it is always beneficial to have a asset and own it rather than and get any asset on lease because getting any asset on lease or rent is a highly preferable method of using any asset at the time of low interest rates.

Advantage of getting on rent or purchasing a home would be that the cost of rent would be Lower and fixed while the cost of purchasing a home would be requirement of high risk as well as high capital.

It is also related to the time frame of the ownership, if any consumer is looking for owning and asset for the short time, he would look for renting the asset and if the consumer is looking for owning asset for the long time he would looking for buying it.

the risk associated with getting any asset on rent is very low in comparison to ownership of the assets as there is high capital outflows.