Car Leasing vs Buying

Car lease versus buy?

 

Personal car leasing, or personal contract hire as it is sometimes known, has always been extremely popular in the United States with one in four cars having been leased. Personal car leasing has also become increasingly popular in the UK yet many drivers who could benefit from leasing their car are still taking out car loans or hire purchase to acquire their vehicles. The main reason for this reluctance to lease is usually the lack of knowledge of the benefits of leasing and the confusion caused by the terminology that surrounds it. In the following article we will explain, in easy to understand language, the personal car leasing process and how it may be the ideal choice for you.

 

The benefits of personal car leasing

 

Before we take a look at the main benefits that car leasing has to offer it is worth bearing in mind the famous quote of oil baron Paul Getty – “If it appreciates, buy it. If it depreciates, lease it”. A car is not like a house which usually appreciates in value after purchase, whereas when you drive away in your brand new car it is already losing value. If you take out a car loan or hire purchase agreement to purchase a car you are simply paying a set amount a month for something that is losing, not gaining value.

 

Let’s take a look at the main benefits of car leasing:

 

• Monthly repayments will be on average between 35% and 55% less costly than the repayments on a car loan. Also, in the majority of lease agreements, only a small deposit is necessary, usually amounting to 3 monthly payments.
• One of the biggest attractions of car leasing is that you are able to drive away in a car that might be out of your price range in terms of purchase price.
• The car’s warranty will normally cover the period of the lease and all maintenance costs can be covered. Road tax is also usually included in the lease.
• No huge up-front costs, capital outlay or car loans.
• Fixed price motoring where most costs remain the same for the period of the lease.
• You can have a brand new car every two to four years.

 

What cars are best for leasing?

It is important that the car you lease will lose as little value as possible over the term of your lease agreement. Generally speaking, cars made by German manufacturers depreciate far less than other makes. For example, the BMW Series 3 Coupe and the Volkswagen Golf are extremely popular due to the high residual value remaining at the end of the lease. This also leads to cheaper monthly payments. The BMW Series 3 Coupe is available for as little as £269 a month.

What makes up a lease payment?

The lease price of a car will be determined by the initial purchase price (with discount taken into effect), the age, mileage, condition and residual value of the car. So, if a car loses less money and has a lower mileage, its residual value will be higher and therefore will cost less to lease.

Jargon busting

These are a few useful terms that may have been used above.

Depreciation – this refers to the reduction in the car’s value caused by age, mileage and condition. The depreciation of a vehicle is greatest during its first year. The make and model of the car also has a large bearing on the depreciation value.

Residual Value – this term refers to the predicted value of your car when it reaches the end of the lease agreement. This amount is very important as the monthly repayments will be based on the difference between the selling price and the residual value.

We understand that getting a new vehicle may be your second largest purchase after a house, so if you have any questions at all please feel free to ask.