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Car Leasing vs. Buying: How to Make the Right Choice

posted on Jun 10 2013 by Jo Petty

Car Leasing vs. Buying: How to Make the Right Choice

A question we get asked regularly from our customers is whether they should buy or lease their next car. The honest answer is that it depends on your individual circumstances, needs and desires. We've decided to produce this handy guide to help you make the decision.

What is car leasing?

Car leasing allows you to pay for the use of a vehicle over a negotiated period of time - typically two to three years, although LeaseYourNextCar offer leases from 12 to 60 months. A monthly payment is calculated based on several factors such as car depreciation value and annual mileage.

You won't pay the full price of the car. In a sense, you are hiring the car for the period of the leasing agreement and you don't actually own the vehicle. At the end of the lease period, you can walk away or lease another car. As long as you have kept to the terms and conditions of the long-term rental agreement, the leasing company face the issue of reselling the vehicle.

Why should I lease a car?

Car leasing is a really good alternative to buying for many motorists. A large section of the luxury cars market is made up of leased cars. By far the most popular cars leased from LeaseYourNextCar are Mercedes, Audi and BMW.

Here are some reasons why you may want to lease:

You change your car regularly

If you change your car regularly, leasing could be beneficial for you. Typically you can upgrade a leased vehicle every two to three years, so you will always be driving a fairly new model.

You can also avoid some of the costs and inconvenience that come from owning an older vehicle and save money by leasing for a short term rather than buying a new car and selling quickly. New cars can lose up to 50 percent of their initial value after three years, however, you will never own the car when you are leasing.

You want to drive the newest model or a luxury car

Some of our customers are quite content to lease a luxury car they wouldn't usually be able to afford to buy, because they don't have a large deposit or can't afford to buy the car outright.

As new technology evolves, so does the integration of that technology and information in cars. New technology advancements in cars are being launched with ever increasing speed, and in some cases a 4 or 5 year old car may seem pretty out of date in terms of navigation, internet and social media integration and in car entertainment.

Leasing a car allows you to drive something better than you may be able to afford to buy, and you can upgrade to the latest model more regularly. This is likely to be cheaper than buying a new car and selling quickly.

You are considering finance for your car or don't have access to a large deposit

In the short term, leasing could be a cheaper option than buying a car. When a lease is calculated, the gradual depreciation of its value is taken into consideration when your monthly payments are calculated and repayments usually work out lower than for a loan.

We've given some calculations of leasing versus buying below. This will help you decide whether leasing or buying is best for you. If you're happy to keep the same car for a long time, buying can be cheaper. However, with leasing you don't usually require a large up front payment, just the first payment (usually equal to three monthly payments).

You drive a company car or run your own business

Leasing allows you to forecast what your car payments are over a fixed term. The monthly costs of leasing a vehicle can also have positive implications on tax for businesses. Leasing a car for business is also a good way of managing a fleet of vehicles for multiple drivers.

You like things to be as convenient and simple as possible

You can add an extra charge for maintenance to your monthly payments to spread the cost of car servicing and other maintenance. If you chose to do this, leasing a car lets you avoid any unexpected costs, as you would have a planned and fixed monthly payment.

What are the disadvantages of car leasing?

There are also several reasons that a lease may not make sense for your particular circumstances. Here are some of the common reasons we have found makes leasing a car difficult:

Your mileage is likely to change and you're not sure what it will be from one year to the next

Usually car leasing is beneficial if you have an average mileage. If you have a higher than average mileage and you know what it is, tell the leasing company in advance. They can then calculate your monthly payments accurately. If you go over your agreed annual mileage you may invoke a penalty

You want to own the car and intend to buy it at the end.

You will not own the car during the period of the lease, and if you intend to buy it at the end of the lease, you may find it is more economical to buy with a loan or car finance.

You want to keep the vehicle for at least 6 years

If you want to keep the vehicle for a long time, it may be more cost effective to buy the car outright.

You tend to make a bit of a mess of the cars you drive!

As part of a rental agreement you make a commitment to take care of the car. The leasing company will accept fair wear and tear and will provide a guide of what is acceptable. If your damage to the vehicle is worse than fair wear and tear, there may be a penalty to pay on the agreement.

You are unsure if you are able to afford the monthly payments for the entire term of the lease

Finishing leases early can be an issue and there may be an early termination payment due. As you don't own the car, if you can't afford the monthly payments, the car will be taken back. There are several options for insuring against the risk of redundancy to help take away this concern.

Is it cheaper to lease or buy?

We've taken a look at the range of the cars we offer on lease and compared this to buying a car to give you a better understanding of how the costs can work out:

Volkswagen Golf 1.6 TDI Se Cabriolet

List price new: £23,675 OTR (on the road cost includes 12 months road tax and first registration)

Business Lease Cost: £169 plus VAT over 24 months with a rental profile of 6x23 (6 months initial payment followed by a further 23 rentals)

Total Life Lease Cost: £4,901 plus VAT

 

Mercedes E Class E220 Cdi BlueEFFICIENCY Sport Auto Coupe

List price new: £36,370 OTR (on the road cost includes 12 months road tax and first registration)

Business Lease Cost: £279 plus VAT over 24 months with a rental profile of 6x23 (6 month initial payment followed by a further 23 rentals)

Total Life Lease Cost: £8,091 plus VAT

 

Land Rover Range Rover Evoque 2.2 SD4 Prestige 5dr Auto

List price new: £39,665 OTR (on the road cost includes 12 months road tax and first registration)

Business Lease Cost: £579 plus VAT over 36 Months with a rental profile of 3x35 (3 month initial payment followed by a further 35 rentals)

Total Life Lease Cost: £22,002 plus VAT

 

The VW Golf Cabriolet and the Mercedes E Class Coupe will be cheapest to lease due to the extra fleet discount support available. However the Range Rover Evoque works out cheaper to buy as its has a strong residual value and little if any fleet discounts.

The lack of discount is due to high demand from over sea markets such as Russia, the UAE and China and the factory production lines are close to capacity busy full filling those requirements, meaning there's little need to offer any fleet discounts. Normally we would expect to see 10-12 percent fleet discount on a vehicle like the Evoque, but you are lucky to get as much as 2 percent discount through leasing the car.

LeaseYourNextCar.com have provided deals for over 3,500 customers and was established in 2001. We have a car finance solution to fit every car leasing need. Contact us today for any further questions you have about car leasing or take a look at our latest offers here. Call on 01273 789 900 or email enquiries@leaseyournextcar.com

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