What is car leasing?
In short, leasing is a long-term car rental agreement. Suppliers rent out their brand-new cars to you for the duration of the lease contract in exchange for fixed monthly payments and potentially an initial lump sum deposit, subject to negotiation. There are a few different types of car leasing that vary on finer details but which maintain the same basic principle:
- Personal Contract Hire (“PCH”) – This is the most common type of lease. You rent the car from the supplier, drive it around until the contract ends, and then return it to the supplier. Simple.
- Personal Contract Purchase (“PCP”) – This contract is very similar to the PCH contract. The only difference is that, at the end of the contract, you have the option to either return the car to the supplier or, alternatively, purchase it from the supplier if you wish; and
- Personal Lease Purchase (“PLP”) – This contract is, perhaps, the most stand-alone type of lease. Essentially, you rent the car from the supplier, again, for a specified amount of time (normally two or three years). However, at the end of this contract, you are required to purchase the vehicle from the supplier for a price that was agreed at the start of the contract. That price is based on things like the car’s estimated depreciation over the contract duration and is known as a ‘balloon payment’.
In addition to the above three types of lease contract, you will also be able to choose whether to lease your car personally, or through any business you may own; the difference being the ability to reclaim VAT on the lease through your business.
What is car buying?
Well, as if you didn’t know already, car buying is when you… buy a car. Ownership of that car gets transferred to you in the traditional DVLA way and away you go. New or used, car buying is an expensive process, which is why it’s been getting less and less popular over the years. Not everyone can afford to fork out large lump sums of money for a motor, especially in today’s financial climate. In this new age of direct-debit spending, spreading costs on a monthly basis is the clear choice for the masses.
A nice thing about car buying is variety. You can buy virtually any car. New cars, old cars, hyper cars, classic cars, you name it, you can buy it; whereas with leasing, you can’t.
On the other hand, though, the vast majority of cars you buy will depreciate in value, leaving you with a potentially gaping hole in your wallet.
So, that’s leasing and buying in a nutshell. It’s been getting progressively more common and popular in recent years, but is it the best way to get your hands on a motor? Better than car buying? We’ve put together a quick ‘pros and cons’ table to help you decide.
Pros & Cons
|Pros||Don’t have to worry about depreciation||You can sell the car at any time and aren’t tied in/restricted|
|You get a brand-new car every time||There aren’t any mileage limits|
|You pay fixed monthly payments within your budget||There aren’t any modification restrictions|
|Manufacturer warranty included for a certain amount of time||You can buy any kind of car, of any age and type|
|VAT benefits to be had through business leasing||You can buy any kind of car, of any age and type|
|Cons||Tied into a contract with early termination fees||You’ll likely lose money because of depreciation|
|You don’t own the car||Often more money will be required upfront|
|Limited yearly mileage allowance applies||Repair may be required more often with second hand and older cars|
|Modifications may not be allowed||Potential uncertainty with regard to a car’s history|
|You may need to have a decent credit score, proof of earnings and potentially a guarantor||Your credit score is irrelevant (that is, if you aren’t financing the car or taking a loan!)|
Which is best, leasing or buying?
As you can see from the table, there are good and bad aspects of both car leasing and car buying. As annoyingly inconclusive as this answer may be, the truth is that it really depends on your individual circumstances and preferences. If you have more cash lying around and aren’t phased by the likely loss from deprecation, then buying a car second hand may well be best for you, whereas if you aren’t able to get hold of a few grand at least for a deposit, the manageable, fixed monthly payments offered by leasing may be better.
In conclusion, then, our advice would be to consider your financial circumstances, as well as your vehicular preferences, and to base your decision on which is easiest for you. Price is always a dominating factor so we’d also suggest comparing the monthly cost of leasing the car you want, with the second-hand cost of buying the same case but, perhaps, an earlier version.