Should I Lease or Buy my Next Car?
Whether to lease or buy your next car is a big decision and there is no one best answer for everyone, it depends entirely on your own circumstances. Before deciding everybody needs to think about the following;
- Do you want to own your car?
- How many miles do you travel in a year?
- Are you accident prone or have children/dogs that are likely to damage your car?
- Are you hoping to drive an upmarket/high value car?
- Are you happy to take responsibility for maintaining your vehicle?
Once you have considered these questions the choice between leasing a car or buying a car should be a little easier to make, so we will examine each factor in more detail ...
If you want to own your car then leasing in terms of Contract Hire is not for you. In this type of leasing agreement you will never own the vehicle. For many people this is an attractive option as you never need to worry about depreciation of the car's value, or about reselling the vehicle, as you will simply hand the vehicle back at the end of your contract and move onto your next car.
If you buy your vehicle it is your asset. This means you can keep your car for as long as you want to and when you come to resell the car the money raised is yours to keep. This is where you must consider the depreciation of your vehicle. Your vehicle will be worth less and less the older it gets, this means less money when you come to sell. Owning your vehicle also means you are free to customise and modify your vehicle as you wish to (subject to advising your insurance company), while in a leasing contract you are likely to face restrictions.
Maintenance and Warranty
When you lease a vehicle it is likely to be brand new. This means it has the manufacturers warranty to cover any major mechanical problems, which commonly lasts for around 3 years. Additionally, you can choose to enter into a funder maintained lease. In this type of agreement an extra amount of money is paid as part of your monthly rental to cover the cost of manufacturer recommended services and replacement of wear and tear items such as tyres and windscreen wipers. This means all of your car maintenance can be taken care of within your monthly rental, allowing for easier budgeting.
If you own your vehicle you will be responsible for all of your own maintenance costs. If you are purchasing a pre-owned vehicle it may not be under manufacturer warranty and as the car ages the repair costs are likely to increase as more and more parts need replacing.
If you enter into a contract hire agreement you may be required to pay a larger initial rental followed by monthly rentals until the end of your agreement. You will then hand your car back and choose your next one and so the process continues! This means your car payments will not end until you stop leasing a vehicle.
If you buy a car you will either need a large lump sum of money or you will be looking at funding options such as a bank loan or a Hire Purchase agreement. Many people choose these options because it means eventually car payments will end and the car will be legally yours. However, in most cases the monthly payment on a loan or Hire Purchase will be higher than that of a contract hire as you will not be handing the car back, so are paying for the total value of the car.
Personal contract purchase
Personal contract purchase is a funding option which offers the most choice. In this agreement monthly payments are made, but these tend to be lower than in a Hire Purchase agreement as part of the total payment for the car is deferred until the end. This means there is a larger payment to make at the end of the contract often called a 'balloon payment'. However, you can opt out of making this payment and return the vehicle. This gives you a choice, not available with other funding methods, of whether you would like to own the vehicle or not.
High value/prestige cars
In a contract hire you are not paying for the total value of the car. You are paying for the depreciation on the value of that car for the time period you are driving it. This leads to lower monthly rentals and can be a more affordable way to driving a prestige car. As prestige cars hold their value well, the cost of depreciation may be lower or similar to that of other non-prestige cars leading to very competitive leasing prices.
Lifestyle Factors: Mileage and Fair Wear and Tear
When you lease a vehicle you will be asked how many miles you travel in a year. The price of your monthly rentals will increase as the amount of miles you cover goes up. The amount of miles the car will travel is agreed upon at the beginning of your lease, if you go over this figure you will face excess mileage charges.
When you hand your car back at the end of the lease contract it will need to be in fair condition. If there is any damage outside of fair wear and tear guidelines, as governed by the BVRLA, you will be charged for repairs. With your own car you can travel as many miles as you like and can choose whether you fix any minor scrapes.
If you are struggling to decide how to fund your next vehicle the Account Managers here at Rivervale are always happy to talk through your options with you - give us a call on 01273 433480!
The comments above do not necessarily reflect Rivervale's views unless clearly stated.