The Benefits of Leasing
PCP, PCH, bank loans, hire purchase - with the plethora of different options available these days it can be confusing trying to find the best way to pay for your vehicle. The general consensus is that buying is always better in the long run, but in some cases it can make more sense to lease things. Billionaire oil tycoon Paul Getty once said “If it appreciates, buy it. If it depreciates, lease it.” One thing is certain, vehicle leasing is becoming more and more popular in the UK, so what are the benefits?
Could leasing be for you?
1 Lower Monthly Payments
When you lease a car you only pay for the difference between the purchase price and the residual value (the predicted value of the car at the end of the lease), when buying a car you pay for the whole thing. This means with a lease you could be able to afford to drive a more expensive vehicle on the same monthly budget. In fact comparing leasing to loan repayments on the same vehicle your monthly payments could be less than half the size with a lease.
2 Regular upgrades
Technology in cars is improving more quickly now than ever before. There are new safety fea-
tures, greater fuel efficiencies and improvements to in car
entertainment systems being introduced all the time, meaning in just a couple of years your car can feel dated. Buying a car can typically mean driving it for a decade or more, however leasing gives you the opportunity to have the newest model every 2 to 4 years. If you’re the sort of person who gets bored with their car easily, leasing can often work out the easiest and cheapest way to change vehicles often.
3 Avoid extra costs
Regularly updating your vehicle to the latest model isn’t just a way to impress your neighbours, you can avoid the costs associated with driving an older car too. Newer cars tend to experience less problems, but if an issue were to arise it would usually be covered under warranty. Also bear in mind that MOTs are not required until a vehicle have been on the road for 3 years, so many lease contracts will avoid that expense too. One final thing not to worry about is Vehicle Excise Duty, this is always included within your contract so you won't have to fork out extra each year for that either.
4 Lower Deposit
Many PCP (Personal Contract Purchase) deals and similar finance products require 10%-20% as a deposit making the initial payment particularly painful for your wallet. With a lease you can drive away a brand new vehicle from as little as one monthly rental payment as your initial charge. This makes a lease contract perfect if you've just started a new job for example, and have a steady income buy no large lump sum to put down for a new vehicle.
5 Don’t worry about depreciation
Often the costliest part of motoring can be the loss of value your vehicle
experiences over time. That’s why when buying a new car it makes sense to look at residual values to try and work out how much it might be worth when you come to sell it. Of course no one can truly predict this figure, there is no way of knowing without possession of a crystal ball! When leasing a vehicle the risk associated with this unknown is taken on by the finance company, you know exactly what you have to pay and at the end of your contract you simply return the vehicle.
6 Reclaim VAT
If you are leasing a car for business use then you can usually reclaim 50% of the VAT on your contract. Be sure to discuss this with your accountant if you think you may be applicable to this cost saving.
7 Fixed Price
With a lease everything you pay is agreed up front, there are no grey areas on annual mileage or equity. This means you know exactly what the vehicle will cost over the time that you use it, which should make budgeting much easier. Other finance products, such as PCP, include the promise of equity at the end your con- tract, which may or may not materialise.
8 No Upfront Payments
When you use Leasing Options there is no deposit or initial rental payable until after your vehicle has been delivered, typically the initial rental is taken 2-4 weeks after you receive the vehicle. This means once you've paid your processing fee you can sit back, relax and not worry about any charges until you're driving your brand new car.
9 Key Considerations
It is important to also consider that:
- if you settle the contract early, you will be required to pay a termination fee;
- if you exceed your agreed annual mileage allowance, you will be required to pay an excess-mileage fee; and
- at the end of your contract, you will be required to pay for any damage to the vehicle, with the exception of "fair wear-and-tear".