If you are considering your next car and you’re not sure if you want to buy a car or lease, then you’re in the right place.
There is no right or wrong answer, unfortunately, it really depends on your circumstances. In this article, we’re going to list some of the advantages and negative of leasing or buying a car, talk about some of the people that might prefer one over the other, and hopefully leave you with plenty of food for thought.
It’s all in your head
Being British means, we’re pre-programmed to feel comfortable with ownership. We buy our houses (even when we really can’t afford them) whereas much of Europe look at long-term leases.
But owning a home makes sense. Homes are an investment that will increase in value. Cars are the exact opposite. Unless it’s a classic car, it’s only going to depreciate in value. So you shouldn’t think of your next car choice as an investment, but rather, look at what is going to better fit your needs.
The financial considerations
It nearly always comes down to money in life, and choosing your next car is no different. The major difference between car leasing and purchasing a car (assuming you are going to pay for it on finance) is how payments are structured.
Generally speaking, if you’re going to buy a car on finance, you are going to have to pay for the entire cost of the car of an agreed period of time. For example, a £15,000 car over 3 years (36 months).
But car leasing works differently. You don’t need to cover the full price of the car, but the difference between the purchase price and the estimated price the car will be sold for when the lease period if finished.
So if it were a £15,000 car and you leased it for 3 years (36 months), you’re only paying the difference between the car now and the car’s value in 3 years, which would be around £9000. So you’re paying £6000 over 3 years.
Thats a difference between £400+ a month and £160 a month. ( of course you don’t own the car after 3 years, you have to give it back but in terms of budgeting month to month.. wow)
Peace of mind
If you’re buying a new car or leasing a new car, the peace of mind is the same. You have a nice shiny new car, nothing is likely to go wrong and if it does the warranty covers it. However, if you buy a used car because you can’t afford the repayments on a new car, then you will always
have a concern in the back of your mind that something is “going to go” and fingers crossed it’s just some new brake pads, not something more serious.
Of course, 3-5 year old cars and pretty reliable these days, but it happens and when it does, you’ll be out of pocket. Plus a new car doesn’t need an MOT, and car tax is included in the lease car.
Flexibility
In terms of car choice, there’s more flexibility in a lease car, however, in terms of financial flexibility, it’s a car bought on finance that will work more for you.
When you lease a car, you pay the difference between new car price and how much the car will depreciate in value. The better the car, the less it depreciates. That means, you get a better deal leasing a Mercedes or other premium brand that holds its value well.
However, there are some restrictions when leasing. Like mileage. You have to estimate beforehand what total mileage you are going to use so the leasing company can calculate the lease cost. If your situation changes and you have to drive more, it could leave you with a fee to pay.
The other sticking point is if you are not able to make the payments on the lease. When you buy a car on finance, you can return the car. It’s called voluntary termination, car dealers don’t want you to do it, you’ll hammer your credit score, but if push comes to shove, you can give it back. It’s your legal right. With leasing, it’s not the same; you don’t have a legal right to give it back and trying to do so in the first 18 months of the lease agreement might result in an additional fee being charged.
However, if your working situation is not as stable as you’d like, you can opt for a 12 or 24-month lease deal, so there is some flexibility there.
Summary
It’s easy to see why car leasing is increasingly more popular, especially with the 20 somethings who don’t have the same hang up with ownership as older generations have. It’s because they like the regular monthly payments, and for most, it’s the only way they can afford to drive a new car.
However, if you are not fortunate enough to have stable work then you need to balance the stable monthly payments with some flexibility, which is when you might want to look at a finance option that allows you the possibility of giving the car back should times get really hard.
