Should I buy or lease my next car?

Motoring 2018-10-30
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If you're not sure whether buying or leasing is the best option for you, read on...

As the popularity of car leasing continues to grow within the UK, many consumers are feeling confused about which is the best option for them.

Unfortunately, there’s no simple answer. Generally speaking, if you like keeping up with the latest model, leasing may be your best option. Whereas if you want to own your vehicle and keep it for a longer period, buying is probably more suited to you.

That said, it really does depend on your own personal circumstances and priorities. So to help you work out which is the best option for you, we’ve put together a quick and easy guide to the pros and the cons of each.


First things first - what is leasing?

Put simply, leasing is a long-term car rental with some deals providing you with an option to buy at the end.

The leasing company buys the vehicle and leases it to you for a fixed period at a fixed rate, with an agreed annual mileage allowance.

You can add a maintenance package to cover servicing, MOT (if the car is over 3 years old), tyres and breakdowns. And, in most cases the road tax is already included in the fixed monthly cost of your lease.

The big selling point for leasing, is that the company takes the risk on the resale of the vehicle, meaning you don’t have to worry about the impact of depreciation.


What’s the difference between Personal Contract Hire (PCH) and Personal Contract Purchase (PCP)?

When it comes to leasing a car, there are two common options which are personal contract hire and personal contract purchase but what’s the difference?

Personal contract hire (PCH) allows you to drive a new car every couple of years with reasonably low monthly payments (depending on your credit rating and affordability) and no concerns about the vehicles resale value as you hand the car back at the end of the leasing term. Some lease deals can include maintenance packages, breakdown cover and servicing but this may not apply to all of them so be sure you’re clear on what the monthly cost covers before signing your contract.

Personal contract purchase (PCP) is effectively the same but with the option to buy your car at the end of your lease. Don’t be fooled as this is one of the more complicated financial products available if you’re wanting to own a car.

The 3 main points of this product are:

  • The deposit required for a PCP deals is usually around 10% of the car’s total value. If you shop around, you may come across manufacturer deals who will offer you something called a ‘deposit contribution’ but this is only if you take out their finance package direct.

  • The amount that you borrow is based on how much the finance company predicts the car will depreciate in value over the course of your lease, so you won’t be paying off the full value of the car.

  • Don’t forget the balloon payment at the end. Your monthly payments may seem low but when it comes to the end of your lease, be prepared for the final payment if you are wanting to purchase the car. This is usually agreed this at the beginning of your deal.


Just add fuel

These deals are pretty new to the market and are great if you want everything combined into one easy monthly payment - the only thing you need to worry about is petrol.

Currently only a few dealerships are offering this package but it’s definitely worth keeping an eye out for due to the ease and convenience if you have a busy lifestyle.


Car Subscription Services

This is one of the newest services available on the market today and it’s definitely worth a mention. Car subscription services allow customers to enjoy the full flexibility of a rolling monthly contract which incorporates the cost of car, maintenance and insurance (the only thing you pay is petrol) into one easy payment that can be cancelled at any time. But wait…there’s more - compared to other finance options, you can have unlimited car swaps meaning if you want to drive a new car every month rather than every year, you can!


Pros and Cons

So now that we’ve discussed all the leasing options available, let’s have a look at the pros and cons of leasing vs purchasing your car outright.

 

Buying

Leasing

Insurance

Assuming no claims are made, the cost for insuring will reduce as the resale value of the car drops.

Most lenders will insist that you get fully comp insurance rather than having the choice to get a cheaper, less protective policy. Having said that, getting fully comprehensive cover on a new car, whether leased or bought, may well be the safer option.

Depreciation

Experts estimate that a new car may lose up to 40% of its value the moment you drive it away from the forecourt, and up to 60% after 3 years.

Not something you need to worry about as the leasing company takes the risk on the resale value.

Payment options

May be more difficult to get credit, especially if you already have a significant amount of outstanding finance.

Payments can be higher because you’ll own the car at the end of the agreement.

Regular payments are often cheaper as you are only funding the difference between the purchase price and the resale value. Leasing companies have strong terms with all of the manufacturers and you can generally benefit from their buying power.

Usually slightly easier to get credit, as it’s secured against the vehicle, meaning a lower level of risk for the lender. 

Initial outlay

Down payment can cost more than that of a leasing deal.

If you already own a car, it can be often be used towards your deposit which helps reduce the cost. 

Usually just between 3 and 6 times the monthly payment amount – generally lower than if you’re buying outright.

An initial payment is usually required each time you end an agreement and start another, meaning this initial outlay is a recurring one.

Maintenance and repair costs

Free to use whoever you like when it comes to maintenance and repairs.

Costs will go up over time as the car gets older.

Often restrictions on where you can get maintenance and repair work carried out. 

You are able to choose a maintenance package included in your lease that covers you from having to pay for any additional work or services.

Additional costs

Don’t have to worry too much about the general wear and tear or how many miles you’re covering – just be careful if you want to make a bit of money from the resale.

Lease deals often come with restrictions on mileage, and charges for additional can be considerable, so always try to be as accurate as possible when choosing your annual excess mileage bills at the end of the contract.

 


Depending on what avenue you decide to go down when it comes to choosing your new car, Hitachi Personal Finance can help.

If your preference is buying your next vehicle outright, we offer low cost car loans starting from just 3.3% APR Representative between £7,500 and £25,000.

However, if personal leasing is your thing, check out some of our great deals from our vehicle solutions.

Hitachi Hints and Tips is intended to be informative and interesting. It does not constitute financial advice, and you should always do further research when making any financial decisions. All information was correct at date of publication.
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