Is It Better To Buy Or Lease A Car?
< Back to blogShould you buy or lease your next car? This is a question most people ask when looking for a new car, and there are advantages and disadvantages to both.
Car leasing is getting more popular in the UK, with the latest data from the British Vehicle Rental and Leasing Association (BVRLA) revealing that more than 1.5 million cars on UK roads are on a lease.
But is buying or leasing right for you? Read on to find out what the differences are and make the right choice for your next vehicle.
Leasing vs buying
In short, a lease car lets you drive a brand-new vehicle every few years, but you will never own it. At the start of the agreement, you’ll pay a small upfront payment, followed by fixed monthly payments for the duration of you agreement (usually 2-4 years).
At the end of your lease term, you simply hand the car back to the finance company. As long as you’ve stuck to your agreed annual mileage and the car is in a condition which reflects its use, you’ll have nothing more to pay.
On the other hand, buying a car will see you take ownership of a vehicle. There are a number of ways that you can buy a car.
- Cash: you can pay the full cost of a car outright, then it’s yours to do with as you please. However, you’ll want to check ownership and depreciation costs before going ahead with a cash purchase, especially if it’s a brand-new car.
- Bank loan: you can ask a bank to loan you all or part of a car’s value and buy it outright. In order to get a bank loan for a car, you’ll need to be approved and have a good credit score. Be aware that while you’ll own the car straight away, you’ll still need to make monthly repayments to the bank for the loan, with interest added.
- Hire Purchase (HP): HP finance spreads the whole cost of a car over a deposit and fixed monthly payments. At the end of your agreement, you’ll pay a small fee (known as the ‘option to purchase fee’), usually around £100, and then you’ll own the car.
- Personal Contract Purchase (PCP): PCP finance requires you to pay a deposit, monthly payments and a final lump sum, known as a balloon payment. You don’t have to pay the balloon payment; if you decide that you don’t want to own the car, you can hand it back.
It isn’t easy deciding on how to pay for a new car. The question of ‘how’ to do it requires extensive research and calculations. And, let’s admit it, this causes some of us a bit of a selection headache.
For this reason, we’ve compiled the top four points to consider so you can make the best choice of whether to buy or lease and have that new car on the drive in no time.
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1. Value
Leasing
Depreciation
When leasing a new car, there’s the comfort of knowing that you don’t have to worry about the depreciation of the vehicle. Instead, this is the responsibility of the finance company that owns it. You simply pay to drive a new model for an agreed length of time and hand back the keys at the end of your contract.
In addition, it’s worth noting that a car’s value will drop by more than 20% after the first 12 months of use. So, consider your new car’s future value in order to help you decide whether you should buy or lease.
Returning the car
Unlike when you own a car outright after buying, you don’t own a lease car, and you will hand it back to the dealer or provider once the length of the contract is up – hassle free.
Buying
Depreciation
A time will come where you have to sell a car you’ve bought, but as the cliché goes: nothing lasts forever. However, with a bit of research you can choose a manufacturer and model which holds its value well. For example, Volkswagen, Toyota and Volvo are just a few brands which tend to hold their values well.
Selling your car
The chances are that you won’t be returning a car you’ve bought (unless there’s something seriously wrong with it). Instead, you’re probably going to run it into the ground and sell up when the time comes to fund a new car. Or you may just want to upgrade or downgrade to suit a change in lifestyle, in which case you’ll get a bit more for your old faithful.
Either way, the process isn’t as simple and cost-effective as it would be if you had leased your car. AutoTrader and other advertising services require a minimum fee for listing your car, which will vary depending on how long you want to have it on there for.
Overall, the silver lining in selling your purchased car means that you can set the asking price which you deem fair for the vehicle. There are also many free services online which can quickly valuate your car with just your reg plate.
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2. Maintenance
Leasing
When you decide to lease a car, maintenance needn’t be a dirty word which leaves you worrying about your vehicle’s health.
For starters, you’ll almost always be covered by the manufacturer’s warranty for your term and here’s why.
The average warranty across the board is 3/36,000 (three years or 36,000 miles, whichever is reached first). Likewise, the average lease agreement lasts 36 months, which means that you’re covered by mechanical faults and breakdowns right up until you hand the keys back.
Furthermore, you won’t need to be bogged down with remembering MOT and service schedules when you lease. Each new car has until its third birthday before it needs a first MOT, so as long as your deal doesn’t exceed the average 36 months, you can bag yourself another saving.
On the other hand, if your deal is longer than three years then you have the option to choose a maintenance package. This covers you for the following:
- Most routine servicing.
- Replacement tyres, including punctures.
- Wear and tear item replacement (wipers, batteries, bulbs, exhausts, brakes etc.)
- MOT test if required.
- Breakdown cover including home start and roadside assistance
Whether you choose to take out a maintenance package or not, you’ll have to make sure that your lease vehicle meets the BVRLA’s (British Vehicle Rental and Leasing Association) Fair Wear and Tear standard.
Buying
If you’ve decided to buy your next car, you’ll know that the onus is on you when it comes to maintenance.
However, you can still benefit from having a warranty on the car you purchase. Even if it’s a used car which has passed the limit set, there’s the option of extended warranties from your car’s manufacturer or a third party.
Remember to check what each warranty covers before parting with your money. Not all of them will protect you from every repair and your insurance alone may be enough, without having to overspend.
Speaking of repairs, you can be much more flexible with them when you own the car. For example, if it needs work doing, you can take the car to any garage you choose. This differs from leasing, where the finance company who owns the car will require you to drop the motor off to approved mechanics that they will specify.
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3. Ownership
Leasing
As mentioned earlier, leasing a car means you’re effectively renting a new vehicle. Your monthly payments to the finance company will count towards the depreciation of your chosen vehicle over the course of your deal.
For some people, this can be a blessing, especially as a brand-new car is less likely to encounter problems. However, even if it does, you won’t be charged for fixing or replacing it. So long as the issue wasn’t caused by your negligence or wrongdoing, in which case you will be responsible.
Finally, your decision to buy or lease your next car could hinge on how you plan to use it.
An important part of the leasing process is selecting a yearly mileage limit, which can range from 8,000-30,000 miles. While most people can calculate their yearly mileage and stick to it, there are exceptions to the rule. If this is you, and your miles behind the wheel fluctuate or go beyond this bracket, you may struggle with this rigidity.
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Remember: Exceeding your yearly mileage cap will be charged by the leasing company at a rate per mile.
Buying
The sentimental value placed in owning a car can’t be underestimated.
Whether you’re a petrolhead or just like any other UK motorist in the market for a decent runaround. Your own car which can be driven – even insured – how you want is important to many.
Firstly, you won’t have to worry constantly about the miles you’re racking up in a car you’ve bought. Your car will lose its value the more you drive it, but there won’t be a finance company at the end of the line giving you stick for it.
Another big bonus of buying a car is being able to customise it with as many additional specs and extras as you wish. At no point do you sign a contract which tells you otherwise.
4. Budget
Leasing
A lease deal is slightly more complex when it comes to payment.
Upfront payment
The first thing you must decide on after choosing your ideal car is how much upfront you want to pay.
Typically, you can choose between one, three, six or nine months upfront. The more you pay initially will in turn make your go against your monthly lease payments, making them cheaper.
Monthly payments
After you have chosen how many months deposit you wish to pay, you then must decide whether you can afford to make the monthly payments for renting the car. If you’re someone who doesn’t like regular outgoings, then this option might not be for you.
Insurance
Lease cars do not come with insurance included within the monthly payments.
So, before your shiny new motor arrives at your door, it’s best to have an insurance plan in place in the days leading up to delivery.
The leasing company or provider you go through will give you the registration plate and other details you need to make this happen.
Remember: The finance company will require you to take out a fully comprehensive plan in order to guarantee the most protection for their car.
Another type of insurance worth considering when you lease a car is GAP (Guaranteed Asset Protection) insurance. This optional policy can be paid monthly and works separate from your main cover. In short, GAP insurance pays any outstanding finance on your car should it written off or stolen.
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Admin fee
Not all providers will charge an admin fee. However, it’s good to be aware that others may have one in place to help process your chosen deal.
The cost of an admin fee will vary from provider to provider, but you can expect to pay between £100-£300.
Buying
Purchase price
The main bulk cost when you buy a car is the price which it is listed at. How much this comes to depends on a number of things – whether it’s new or old, or if it’s being sold by a private individual or dealership.
One thing is for certain, however, and that is you’re going to need to have some funds saved up. This can either be enough to buy the vehicle outright or to pair with a bank loan in order to help pay the asking price.
Insurance
Getting an insurance policy for a car you’ve bought is more flexible than if you were to lease your next motor.
There’s no finance company requiring you to take out a fully comprehensive plan. Instead, you can opt for cheaper alternatives such as third party and third party, fire and theft insurance.
Remember: Third party and third party, fire and theft policies don’t offer as much protection to you and your car in accidents.
Overall, there are advantages and disadvantages to be had whether your buy or lease your next car.
If you find yourself with enough cash saved up to buy a car and want the sentimental benefits of ownership, then leasing probably isn’t for you.
On the other hand, if you need a car quickly and don’t have the ability to pay a large upfront sums, then perhaps buying isn’t the best option.
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Need more information on car finance or leasing? Head over to our handy guides page to find out everything you need to know before getting started.