Car Leasing Explained : Leasing vs Buying a Car
Leasing a car allows you to drive a new car every couple of years for a fixed monthly fee. Can it really be cheaper than owning a car? let’s find out.
Now I’m a big fan of car leasing having leased several personal cars and numerous company fleet cars in the past. Whilst I’m no financial advisor or car finance professional I’ve learned quite a lot over the years so here’s my unprofessional take on car leasing.
What is Car Leasing or Personal Contract Hire (PCH) and how does it work?
Think of it as hiring a car over a prolonged period of time and with an agreed mileage, at the end of that period (usually 2, 3 or 4 years) you simply hand the car back.
The leasing company takes care of the road tax and as your car will be brand new it will, of course, come with a manufacturer’s warranty and won’t need an MOT during its first 3 years on the road. You will need to keep the car serviced in line with the manufacturer’s recommendations unless you opt for a “fully maintained” deal you will need to cover the cost of things like servicing and tyres yourself.
Why would anyone lease their car?
A car (99% of the time) is a depreciating asset; unlike your home which usually goes up in value, your car will usually go down in value. Lots of people choose to buy appreciating assets (like property, rare collectibles, artwork) whilst they prefer to rent or lease depreciating ones (planes, boats, cars).
The cost of leasing a vehicle can actually be less than the cost of owning a car or buying a car using other types of car finance such as Personal Contract Purchase (PCP).
If you usually do a 3-year PCP on your car and then hand it back without paying the balloon payment, or you usually just move a little equity onto a deposit of another car you should be able to see how much that car has cost you during your deal (Deposit + total monthly payments + road tax - any residual value = total cost), you can then simply compare that cost (or predicted cost) against the cost of a lease. If you buy a car for £25k, spend £600 on road tax and then sell it after 3 years for £14k the cost of ownership was £11,600. Maybe you could have leased that same car (or a better one) for three years for less than £11,600?
By simply handing your car back at the end of a lease deal it means you don’t have anything to sell or trade-in making it easy to move to a different manufacturer or lease company.
How do you find the best car leasing deals?
The very best deals come from shopping for the deal rather than shopping for a specific car. What I mean by that is looking at what you can get for your budget - at times it may be cheaper, for example, to lease an Audi A6 than it costs to lease an Audi A3. Perhaps you can find a better deal on a Nissan Qashqai than on a Ford Fiesta. Leasing deals change regularly and the purchase price of the car is not always reflected in the lease payments so it always pays to keep an open mind and shop with your budget rather than with a fixed idea of your next car.
I personally use LeaseLoco when I’m looking for car leasing deals as it’s a great car leasing comparison site with deals from a whole host of approved leasing brokers.
Don’t forget to watch my monthly “Car Lease Deals of the Month” videos on YouTube where I show you my picks of the best car leasing deals every month!
What happens at the end of the lease?
You hand the car back, you should make sure any damage (outside of BVRLA fair wear and tear guidelines) is taken care of before the car goes back or you will be charged for it. A driver will arrive to inspect and collect your vehicle on return day - that’s it, it’s gone.
Can you lease a car with bad credit?
It is possible but, as with most financial products, you won’t get the best deals unless you have a good credit history. Maybe consider if you have problems with your credit if leasing is really well suited to you; maybe you’d be better off buying a cheap used car and running that until your financial position improves.
Is leasing only for new cars?
Well…no, some finance companies will allow you to lease a used car but the deals often seem to be more expensive than leasing a new one; also consider that a used car may require MOT’s and may not benefit from a complete manufacturer’s warranty. The vast majority of lease deals you see advertised are for brand new cars.
I have lots of questions…
Simple, watch the video below to find answers to all your Car Leasing questions…
Car Leasing Explained : This video tries to answer all of the most frequently asked questions about car leasing and should help you to decide if leasing a car is something you should consider.
I try to deliver honest help and guidance for real people. Remember that I am not a financial advisor or car finance professional and am therefore not qualified to give any kind of financial advice, views shown here are purely my own but you must make your own financial decisions. Always seek professional advice before entering a finance arrangement of any kind and seriously consider your financial position and the long-term affordability of any deal that you may enter into.