Should you lease or purchase your next vehicle?
Article by Edward Andrews | Sept. 2nd 2017
If money did not exist, most people would choose full ownership every time. However, finance is always a deciding factor and opting to lease a car is often the best way to get the vehicle you want as part of an equally desirable arrangement. With that said, let us take a look at exactly what is involved, including the most notable pros and cons, when it comes to leasing a vehicle:
What is a car lease?
Firstly, before we consider if this is a good idea or not, what is a lease exactly? Buying a car will give you full ownership of a vehicle for as long as it lasts. However, leasing refers to rental, usually over a long period, in which the product in question is eventually returned to the owner. In the case of leasing a vehicle, the car is obviously the product which is then given back to the dealership at the end of an agreed term. As a rule, the term for a car lease is usually between two and three years, while a typical car loan will be slightly longer at four or five years.
For this reason, leasing can be an excellent option. Sometimes a buyer may worry the value of a particular vehicle will depreciate a great deal or that they might not even need a vehicle for a long period. In the case of leasing, the buyer can have what they need on a temporary basis but while the cost of a lease is always less than a standard car loan repayment, leasing a vehicle is not usually an ideal solution for the long term given you will not own anything at the end of this period.
Depreciation and the cost of repayments
Deprecation is the natural reduction in the value of a car over time and effectively, the purpose of a lease is to cover the cost of this depreciation for the car dealership and make a small profit at the same time. For this reason, the car dealership is obviously happy with such an arrangement and likewise, the consumer is please with being able to acquire the car they want for less than the cost repayments on a loan for the same vehicle.
As the cost of a lease mostly depends on depreciation, it is also possible to find excellent deals and value for popular models such as Mercedes which are well known to hold their value over time. Yes, car dealerships also take this into account, although if a particular model is also known for being associated with a large amount of tax or fuel, the cost of a lease will be higher to reflect same.
Mileage and incentives
Keep in mind that mileage is also a strict stipulation on any contract as the dealership will need assurance that the vehicle will be used as agreed in negotiations. For example, if the intended use of the vehicle is for work purposes and to travel cross country on a daily basis, the car dealership will need to take this into account as driving long distances will greatly depreciate the value of a car over time.
Incentives are a lesser known commodity in the leasing industry and these are important when it come to the value of a car. This simply refers to some car dealerships who can offer a very enticing lease option for particular models or brands at a certain time of year. In this regard it is always best to ask a dealer directly before rushing into any other agreement that could potentially cost you a lot more.
Ownership and insurance
You will not own the car so this should go without saying, when you lease a vehicle the option of customization is out of the question. In fact, you will be breaking the contract and most likely reducing the long term value of the vehicle for which there will certainly be a penalty.
Insurance is also directly affected when you lease a vehicle. As the financier has full ownership of the vehicle, they will have very strict stipulations in the contract for the duration of the lease. For example, if there is absolutely anything at all which needs to be repairs or assessed on the car, you are usually expected to have it checked out immediately.
Having decided to lease a car, the best way to get started is by speaking with a trusted car dealership which can offer you a full range of options for a suitable lease.
Advantages of leasing
- Lower monthly payments than a typical car loan
- Warranty is always in place to protect the buyer
- You will never need to sell the vehicle, even when you want a new one
Disadvantages of leasing
- Mileage limitations
- High level of maintenance required
- Insurance can be quite extensive
Leasing, hire purchase and PCP
Leasing a vehicle always requires an up-front payment which is calculated based on an agreed number of monthly payments. With that said, the more you pay up front, the smaller the monthly payments will be in future. However, not everyone has enough cash available to pay for this up front installment in which case the buyer will need to organize a type of loan. This loan is called “Hire Purchase” which is an agreement from a car dealership to cover this cost in return for a higher monthly repayment.
Although this option will be the only option available for some buyers, it is extremely expensive and can cost up to three times as much as a standard lease arrangement.
Alternatively there is also a “Personal Contract Purchase” in which the buyer pays a lower monthly repayment with a view to paying a final payment toward the end of the term which will give them full ownership of the vehicle. Essentially this is a combination of leasing and hire purchase as the buyer will not only rent the vehicle, but also have an option afterward to own it.
Likewise, if the buyer does not want to take ownership, they will also have a choice to hand back the car and end the contract.
Should you lease a car or not?
Leasing a vehicle can be a very convenient option but it also requires commitment and an ability to cover repayments in the same way as a conventional loan. You may not own the vehicle and you will be expected to take great care of the car but with time to agree upon the most suitable term and amounts for these repayments, leasing is a relatively straight forward process which is often a lot less hassle compared the prospect of buying, selling or trading a vehicle. Either way, the best way to move forward is to get in touch with a respected dealership and starting honing in on your dream car.
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