Leasing versus Purchasing a Car
Leasing versus Purchasing a Car
Choosing how to finance acquiring a car can make all the difference to the final overall cost of ownership. Choices range from parting with hard earned and saved cash through to loans, hire purchase or leasing options. Each offers its own benefits and features and selecting the right one for you can make your motoring experience that much more pleasant.
Buying for cash is a luxury that few can afford. Even if you have a part exchange vehicle the balance to pay between what you get and what you have to pay may be more than you want to part with from your hard earned savings. Although you will have outright ownership, the vehicle is a depreciating asset and will lose around 15% of its value in year one and more than 10% for each subsequent year.
It is not surprising that most new cars are acquired with some form of borrowing or third party funding. The simplest options are bank loans which may be secured for large loans or unsecured for smaller amounts. Either way, you will still have title to the car and it will be yours to do with as and when you like. Provided you continue to make the loan payments as they fall due you can freely use the car (or dispose of it) when you choose.
Some car finance will be based on Hire Purchase. This is a form of lending where you effectively hire the car for the period of the agreement and then have an option to purchase the vehicle at the end of the term for a small amount (usually £25). Whilst you will still be the registered keeper you will not own the car until the end of the agreement when you have paid the option to purchase fee. Until then, if you fail to make payments the lender may still be able to repossess the vehicle although there are statutory rules regarding your and their rights up to the point where a half has been paid.
Many companies choose to lease their cars instead of financing them via Hire Purchase. With leasing, you rent the car and never own it. However, most leasing is done on the basis that you will rent the car for a fixed period and then return it to the lessor (owner). When this happens, the lessor makes assumptions over the value of the car at the end of the term based on your anticipated usage. By taking the car back and then selling it they hope to clear what is owed and, over the long term, make profits on disposal. However, this can be an effective method of financing since you will only pay for the anticipated depreciation in value of the car plus financing costs. This means that the monthly payment will be lower than on a full payout financing option.
Leasing rentals attract VAT meaning that private consumers rarely find leasing a viable option as none of the VAT is reclaimable. Since most of the new cars for sale are acquired by business that can reclaim some of the VAT and are looking for low cost usage, leasing is a low cost funding option always worth considering.