Leasing vs. buying a car: things to consider
Whichever option you choose, leasing or buying a car is a serious financial commitment. Here are four things you need to think about before deciding:
The more miles a car has driven the more its value depreciates, hence the higher costs. The predicted mileage on the car allows the leasing company to put an estimation on its value by the end of the contract.
Due to this, going excessively over the mileage cap could incur extra costs. If you are not able to accurately predict your annual mileage, you may need to estimate a higher value before your contract begins. Or, if you buy a car, you don’t need to consider your mileage, except for maintenance and insurance purposes.
While excess mileage charges can sound scary, they aren’t always as bad as you might expect. We charge as little as 5p per extra mile. But to avoid any extra surprises at the end of your agreement, it’s best to be as accurate as you can when leasing. Your Account Manager will be able to help you to work this out.
2. Your budget
Leasing a car gives you the option to make fixed, monthly payments over a set period of time. This is worked out before your contract begins.
When you buy a car, you will need to pay the full amount upfront, or you could buy the car under a Personal Contract Purchase (PCP) agreement. Both of these require a large amount to be paid, whether it’s before the purchase or as a balloon payment.
It’s important to look at your finances to see which is the most affordable option for you – if you can afford to pay a larger sum or need to make fixed payments each month.
You can read more about the difference between PCP and leasing here.
3. Initial Rental
When it comes to leasing a car, you will usually be asked to make a first payment at the start of the contract, which is described as the initial rental. By making a larger initial rental, you can reduce the amount paid at the start of each month.
This is not the same as making a deposit – you will not receive this back at the end of your contract. It’s worth bearing this in mind if you do decide to lease.
With leasing, you are expected to return the car in good condition. Your agreement will include Fair Wear and Tear guidelines set by the BVRLA. The vehicle isn’t expected to be perfect; it is accepted that there may be some light damage to the car that comes from general usage.
However, if the car is returned with too many scratches, dents and costly damage, then the driver will be expected to pay for this in line with the guidelines laid out in the contract.
Why leasing can be cheaper than buying
Aside from buying a property, investing money into a car is one of the most expensive, long-term financial commitments in your life. Many people are put off from purchasing a new car outright, or with finance, given the large amount of upfront money required.
This is why car leasing has become increasingly popular, as you don’t need to spend a huge amount initially before you receive the car.
Read on to find out the other advantages of leasing a car to see why it could be a better and cheaper option than buying.
Main advantages of leasing a car
If you decide to lease a car, the main advantages include:
- Lower monthly costs
You usually have a few options to choose from when it comes to the initial payment, usually between 1-12 months’ worth of payments.
This means you can control the amount you pay each month across the length of the contract. Plus, as long as you adhere to the Wear and Tear guidelines, don’t exceed the mileage limit or terminate the lease early, this could be cheaper than buying overall.
- Enjoy a better car
As the cost of leasing a car is often lower, this opens you up to a wider range of vehicles than if you were paying outright or taking up a finance option.
Because you are paying for the car’s depreciation for the lease period, instead of the full value of the car, the price can come in at a lower monthly payment.
- Fewer repair costs
You will be driving a new and more reliable car, which makes it less likely you’ll have to pay out for big repair items like aircon units or timing belts. The battery will also remain in good working order throughout the lease period.
Plus, when you take up the contract, you have the option of including maintenance cover, which covers small repairs, tyres and servicing. Learn more about our maintenance package here.
- Avoid the hassle of selling a car
At the end of the contract you return the car and walk away, provided you meet the contract requirements. Or, you can take up another lease for a new car.
This means you don’t have to go through the hassle of selling it yourself and securing a good price. When you own a car outright, its value will be lower than when it was purchased, which means you will never get a full return on your investment.