Car Leasing Deals : What’s the catch?
Why Car Leasing and Car Leasing Deals Are Becoming More Popular
With a variety of options available for financing your car, car leasing is becoming increasingly popular. Let's explore why car leasing deals are gaining traction and what their pros and cons are.
Understanding Car Leasing
Car leasing, also known as Personal Contract Hire (PCH), shares similarities with Personal Contract Purchase (PCP). Both require an upfront deposit followed by monthly payments over a specified period and impose a mileage limit. However, the key difference with PCH is that it may cost less but you won't own the car at the end. Instead, you simply return it and can start a new lease or walk away - that’s nowhere near as bad as it sounds in many cases...read on.
Advantages of Car Leasing
Leasing a car could be an ideal way for you to drive home in a brand-new vehicle. Here are some advantages of opting for car leasing deals:
Lower Monthly Payments
Car leasing allows you to drive a new car for typically lower monthly costs than other finance methods. Since you're essentially renting the car, you avoid concerns about depreciation and can switch to another new car at the end of the lease period.
Shorter Commitments
Most car leasing deals last only two or three years, with no obligation to buy the car at the end of the contract. This means you're not tied down long-term and can easily move on to a new vehicle without the hassle of selling or trading in your old car.
Minimal Maintenance Costs
With PCH deals, you're leasing a brand-new car that comes with a manufacturer’s warranty covering the lease duration. This reduces worries about costly repairs. New cars are less likely to have issues, but if they do, the lease company will typically handle the repairs.
You might also be offered GAP insurance as part of your contract to cover the remaining finance if the car is stolen or written off. However, you may find better deals on GAP insurance through third-party companies. ALA Insurance offers customers a great discount when using the code JIM10 with 3 years cover for a PCH (Car Lease) often around £100 to cover you for all 3 years.
Disadvantages of Car Leasing
There are scenarios where car leasing deals might not be the best option. Here are some disadvantages:
No Ownership (although this could also be an advantage)
Similar to renting a house, you won't own your leased car; unlike a house though, a car is a depreciating asset meaning that the car loses value which each year it grows older, it can also cost more for repairs etc as it gets older. The lower payments of leasing come with the trade-off that you don’t build any equity in the vehicle, this is sometimes possible with PCP. HP is the only car finance option where you own the car outright once you make your final payment.
The key point here is to try to work out how many years you will likely own the car and then try to calculate how much it will cost you during that period. If you buy a car for £30k, keep it for 3 years and sell it for £18k the cost of ownership is £12k (plus any taxes and servicing etc), this is the amount that ownership of that car for 3 years has cost you - if a lease is significantly cheaper than this then maybe it’s a good thing to consider.
Check out the video below to see how to calculate the difference between a PCP and a Lease.
Charges for Damage and Exceeding Mileage
You must return the car in good condition to avoid additional charges. Any damages outside of BVLRA Fair Wear & Tear Guidelines must be repaired or you’ll be charged for the damage by the leasing company, you'll also incur penalties if you exceed the mileage limits specified in your contract (there will be an excess mileage fee in your contract, this will show as X pence per mile).
Restrictive Terms
Leasing contracts can be quite restrictive. Early termination can result in fees, often half of the remaining lease payments will need to be paid if you can’t to get out of your deal early.
You’ll undergo a credit check to ensure you can manage the monthly payments.
There's also a mileage limit, with penalties for exceeding it, and you're not allowed to modify the car without returning it in its original condition.
Is Car Leasing Right for You?
Car leasing could be the perfect way to drive a new car without the hassles of ownership. However, it's essential to weigh-up the benefits and drawbacks to determine if it's the right choice for you.
A car lease deal might be ideal if you:
Want to avoid depreciation concerns / market conditions
Prefer changing your car every 2-3 years
Seek lower monthly payments compared to other finance options
Want to minimise maintenance costs
A car lease deal might not be suitable if you:
Like to chop and change your car regularly
Plan to keep your car long-term
Intend to modify your car
Don’t want limited mileage
Treat your car like a skip / battering ram
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Check out LeaseLoco, the UK’s best Car Leasing Comparison Site