Car leasing: the pros and cons
Buying a car used to be simple. Most people had the choice between buying in cash or spreading the cost over a period of time with a hire purchase (HP) finance deal. Over the years, new ways of buying your dream car have appeared, making it so much easier for you to have the car you want, when you want it.
In Britain, the vast majority of car buyers choose finance as a purchasing method. In the 12 months prior to May 2020, just under two million new and used cars had been sold on finance, with leasing being one of the options.
Leasing has been a popular way of financing a car for decades in countries such as the USA, but it’s been slower to take off in Britain. Now, though, leasing is rapidly becoming the route of having a new car for many Britons.
Car leasing explained
Leasing a car is much like renting a property. You pay a deposit (usually three to six times the monthly amount), pay an agreed amount each month for a pre-agreed number of months (usually 24, 36 or 48) then, at the end, you hand the vehicle back and walk away.
You’ll never own the car, but leasing is popular because it allows us to drive cars we otherwise wouldn’t be able to afford to buy outright.
Read on to discover more about leasing, including the benefits and pitfalls.
Why should I lease?
Undoubtedly, the main appeal is that you’re able to drive the latest model for a few years before replacing it with the next must-have wheels.
Previously only a privileged few could afford to buy and upkeep a £90,000 range-topping SUV, only to update it with a newer model in the same timeframe. But by leasing you can have the lifestyle and the image without the need for such deep pockets.
That’s not to say leasing is cheap, but with numerous brokers all vying for your business, there can be some great deals.
There’s the peace of mind to be had, too. New car leases will be covered by the manufacturer’s warranty and road tax and breakdown cover will be thrown in – even servicing on some deals – leaving you to cover the monthly payments, insurance and fuel.
You also won’t have the worry about the car’s depreciation, as you’ll be handing it back for that to become someone else’s problem.
How does it work?
There are a few different ways to sign up for a leasing deal. Most manufacturers offer them on their range of brand-new cars, and many people go for this option as they feel it’s more trustworthy. Going direct to a manufacturer can offer peace of mind, but it’s worth getting a quote from an online broker to check you’re not getting a poor deal.
Online brokers can have the best deals – they source the car you want, tie you in with a leasing company and, once you’ve passed the financial checks and signed the paperwork, they’ll deliver the vehicle to you. Car supermarkets and independent dealers often have leasing options on their cars, too.
Things to watch out for
On paper, car leasing seems very straightforward, but it can become complicated in some scenarios. Perhaps you’ve signed up to a four-year deal but within 18 months that two-door coupé is simply too impractical and your partner is less than amused – can you hand back the car?
Well, depending on the finance company, usually you can, but be prepared for a potentially hefty cancellation fee (normally a percentage of the remaining cost).
Or what happens if you can’t keep up with the monthly payments? In this instance, speak to the finance company to discuss options, but don’t just ignore the issue and fail to pay, because that will affect your credit rating.
Conversely, you may get to the end of the agreement and want to keep the car for longer. Again, speak to the company – monthly payments may get cheaper as the car gets older, but remember you’ll only be extending the deal, you won’t get the chance to buy the car outright like you would with a personal purchase contract (PCP) deal.
The arguments against leasing
Up to this point, you may be thinking that leasing your next car is the best option, which could well be the case, but there are some important things to remember.
Leasing can be the least cost-effective way of getting behind the wheel because, at the end of the agreement, the car you’ve paid for is taken back and you have nothing to show for it.
Therefore going down the leasing route makes the most sense for expensive, fashionable and desirable models, but not necessarily for small city cars.
How much the car will depreciate in two to four years is often factored in to the monthly lease price – the better the residual value (fashionable, high quality cars ‘hold on to’ their value better), the less you’ll pay per month.
Where the best deals are
If you’re picky about a car’s specification and feel it must have the high-end stereo system, the larger alloy wheels and extra fancy paintwork, leasing may not be for you. By all means choose a few of your must-haves, but often the best leasing deals are on standard models. Select too many options and what seemed like a good deal initially could quickly become eye-wateringly expensive.
Lastly, do your homework before committing to a deal. Once you’ve shopped around and found the car for you, make sure the monthly payments include VAT to avoid any post-signing surprises. Also, it’s really important to make sure you’ve factored in enough mileage allowance. Hand back the car with more miles than was agreed and you’ll be slapped with a fine – the same goes for damage; general wear and tear will be included, but clumsy parking scrapes will not.
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