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Leasing vs Buying

So you’re in the market for a new vehicle. This can be overwhelming with a lot to think about. After making your vehicle choice and agreeing a price, the next decision could be the most critical - should I Lease or Buy?

Market Trends

As new vehicles have increasingly become more expensive in recent years, more Buyers may consider leasing a vehicle; In fact, experts predict that in the next 10-15 years the big majority of us will be leasing their cars compared to buying. And the payment will become a fixed budget expense, similar to your mortgage.

In the business car finance market, leasing agreements are already the primary source of funding for new cars and account for around two thirds of new business in the UK.

Your next decision is whether to Lease or Buy!

As leasing is growing in popularity and offers a viable option to buying, leasing can seem complicated but is not. Yet many do not understand it. Leasing also can cost less, because you are only paying for the estimated depreciation of the vehicle over the lease term, against paying for the whole value of the car. In short, in a lease it is like renting a car over the term and in most contracts added options to purchase at lease end. So you’re getting use of the car rather than actual ownership.

Payment overview

With leasing essentially the noticeable advantage is that the payments are much lower than buying. For example, if you look at a vehicle you could buy for £23000 and decide to lease that vehicle for 3 years, at the end of those 3 years the vehicle will be worth £12000. From this the dealer/broker would take the difference between the original cost, £23000, and the residual value, £12000, plus finance charges to determine your monthly lease payment. The monthly payments for a loan, if you bought, are higher because you take on the entire cost of the car, £23000.

Why should you lease?

• You should lease if you like to have a new car every two to four years.
• You should lease if you wish to avoid expensive repair bills and maintenance costs not covered by the manufacturers warranty.
• You should lease if you are a conservative and safe driver, unlikely to incur damage beyond “normal wear and tare”.
• You should lease if you are an employer or self-employed and wish to cut tax expenses.
• You should lease if you wish to drive a more prestigious car than you can afford to buy, or may afford to buy in the future.
• You should lease if you wish to avoid expensive deposits.
• You should lease if you have a good credit history.

Leasing advantages

• Lower monthly payments due to the nature of a lease.
• Shorter terms allowing a greater number of cars more often, meaning no long-term commitments associated with buying.
• Guaranteed Asset Protection, or GAP, provides protection if your leased vehicle is damaged or stolen during time of your lease, where if you had bought the car, insurance companies would base their calculations on the used value of the car – even if you had just drove it off the lot.
• When used in business, leases become a tax write-off.
• Money saved can be used in profitable investments.

Leasing disadvantages

• There are mileage restrictions – often leases come with mileage limits of around 12,000 miles, with penalties for going over these limits – around £0.7 per mile.
• Lack of ownership – buying a car can cost more, but it also builds your equity.
• Demand for good credit rating.
• Leases are hard to terminate should the situation to get out of a lease arise.
• The car must be kept well maintained in order to avoid charges at the end of the lease.

Why should you buy?

• You should buy if you don’t mind driving the same car for year after year.
• You should buy if you don’t mind paying for expensive repair and maintenance bills, not covered by the manufactures warranty.
• You should buy if you wish to avoid further monthly repayments.
• You should buy if you think you might have to give up the vehicle unexpectedly.
• You should buy if you’re rough and demanding on cars, and wish to avoid paying a penalty.
• You should buy if prestige is not an issue.
• You should buy if you’d rather save money for a deposit, and build up equity in you’re vehicle.
• You should buy if you have a poor credit rating, as this is most likely to disqualify or make the terms of lease unattractive.

Buying advantages

• No mileage restrictions.
• You have ownership of your vehicle.
• Credit is not as big of an issue.
• You can maintain the car to your standards.
• You can customize the car anyway you want.
• You can sell the car yourself anytime.

Buying disadvantages

• Usually higher monthly payments.
• You are responsible for repairs and maintenance costs after the warranty ends.