If you’ve got your heart set on the perfect new car, but it’s just out of your budget, there may be an answer. Leasing is a popular choice for many motorists due to a number of great benefits. It can be cheaper, you can afford a much better model and you can easily upgrade to a new car in a few years. However – for many – leasing will simply never replace the wonderful feeling of owning your own car.
There are pros and cons to all financial investments. In the end, it will come down to your personal circumstances. It also depends on the particular car. In some cases it will be better value to lease. In others, buying might be the financially sound option. The final consideration is your lifestyle. There are some restrictions on leasing that might not suit your life.
For those feeling a little confused, think of leasing like renting a house instead of buying. You pay a down-payment and then monthly amounts to the owner of the car. At the end of the contract you are free to move on to a new car or leave it entirely. You will never own the car, you are simply renting it for an extended period of time. Typically, this will be two to three years. It’s an attractive option to many, let’s take a look at the pros and cons.
PROS
Leasing can be much cheaper
If you strike the right deal, there can often be no down-payment required. Your monthly payments will also be significantly lower than the loan repayments when you buy a car. So you’ll save on up-front costs and monthly outgoings. This makes it a great option if you need a motor but are a little strapped for cash.
You can afford a better model
The payments are lower than when you buy, so you could splash the money on the latest model. When you look at buying, the dream car might be well out of budget. However, if you’re open to leasing, then that perfect car might just be in price range. You can get all the luxury extras and you’ll be able to show it off to all of your friends!
Upgrade every couple of years
When you lease a car, the contract will generally run for two-three years. When that’s up, you take the car back and you are free to browse all of the new models that have come on to the market. Car enthusiasts will love the idea of having the best new car every few years. Leasing is a really affordable way of driving the best quality cars and always staying up to date. You’ll never lose that new car smell!
Tax allowable expense
If you lease a car as a business vehicle, it is eligible as a tax allowable expense. This can cut the cost of running your business.
Avoid depreciation and stay under warranty
When you buy a new car, it will lose 30-40% of its value over the first two years. When you start looking at leasing options, this isn’t a problem. Since you don’t own the car, the trouble of depreciation doesn’t fall on you. You simply hand the car back and move on.
Thanks to the short contract periods, you’ll always be covered by the manufacturer’s warranty. This will give you peace of mind as you travel.
Thanks to Axion23 for the image
CONS
You don’t own the car
For many petrol-heads, owning your own car is the dream. Sometimes there’s nothing better than knowing that your car is all yours. That feeling that you’ve earned it. You’ve scrimped and saved and now it belongs to you. Leasing will never quite feel the same. It also means that you can’t make any modifications or customise the car in any way. You can’t install a big new stereo or change the paint job. For some, that isn’t a problem, it comes down to personal preference.
Perhaps most important of all, you gain no equity in the car when you lease. When you buy a car, each monthly payment goes someway to making it yours. At the end of the payments, you own the car which will hold value. Your money has gone somewhere and you can sell the car on or use it as a part-exchange.
Can be more expensive in the long run
Although the monthly costs are cheaper when leasing, it can be more expensive in the long-term. When you buy a car, your monthly payments will eventually diminish as you pay it off. Let’s say that three years pass and you’ve now paid back the cost of the car. You now own it outright. If you then keep the car for another five years, that’s five years of zero monthly payments. Over the period of eight years that will amount to much less than the equivalent time leasing. Even after depreciation costs, you’ll have a car that holds value and can be sold on. Leasing payments go on forever, with no value at the end.
Hidden costs
Be sure to take a long, hard look at the leasing contract as there will be certain restrictions and costs. For example, there will be a mileage limit – often around 15,000 miles per year. If you go over this limit, you are subject to high charges that will soon rack up. Make sure the mileage is right for you before you sign.
There will also be charges for wear and tear so you’ll need to keep your car in pristine condition. This will be fine for many careful car enthusiasts. However, if you’ve got kids you’ll need to be extra watchful for those crayons and drinks on the back seat!
Verdict
If you love the idea of driving the latest model and upgrading every few years, then leasing is perfect for you. If you don’t have a lot of capital to put down right now and monthly payments are tight, you’ll appreciate the cheaper price too. However, if you’re looking for a long term car and have the money upfront, you’ll be better off buying.
Having said that, be sure to calculate the exact numbers when looking at your new car. Each car differs and these suggestions on value will not apply to every model out there. Finally, take your lifestyle into account and decide what you need from your car. When you’ve considered all of these options, you’ll know what’s right for you.
