There are many ways to finance a car and no matter whether you’re paying 1 thousand pounds for a car or half a million pounds, it is widely believed that the 2 most traditional ways for a consumer to finance the purchase are by cash or a secured loan such as hire purchase.
The first option, cash, is the one that is often perceived as best for two reasons. Firstly, people believe that they are able to negotiate a better deal if they are paying for the car outright (this is not always true) and secondly, they believe it also ensures that they won’t have anything additional to pay over and above the initial cost, such as interest on any borrowings.
Although not as recommended as the first option, primarily because it can increase the amount of money that you pay for the car overall, hire purchase can be a good way to finance a purchase, as it spreads the cost over a set amount of months or years and allows you to own the car after the final payment.
Whilst these 2 options have been perceived as some of the best alternatives when looking at purchasing a car, there is another option that is becoming increasingly popular - car leasing. In fact, according to the Finance and Leasing Association leasing accounted for 57% of all car finance for new cars taken through dealers.
For all intents and purposes, some car leasing (such as personal contract purchase) is extremely similar to actually purchasing a car via hire purchase. However, with PCP you pay much lower monthly payments and can choose whether you want to own the car at the end of the contract. If you do, you then have to make a balloon payment. If you don’t want to buy the car at the end, then you can simply return it to the dealer and get a new one.
For some people, the belief that they never own the car instantly puts them off contemplating car leasing, as they feel that if they won’t own the vehicle, they aren’t getting good value for money and any money they spend on the car is wasted, due to the fact it’s never actually theirs. However, as outlined above, this is not true.
But if you’re the type of person who finances their car purchase by using hire purchase or a loan and buys a new car as soon as the loan has finished, you can actually lose money by following this approach when you consider depreciation and the value that you might get on a part exchange in the future.
If you’re considering vehicle leasing over buying a car outright, there are certain things that you need to know before you go ahead.
Check the leasing agreement’s primary terms and conditions first and foremost.
With most lease contracts you need to agree upfront how many miles you will drive each year and if you exceed these you may incur additional fees. Generally speaking, this is around 12,000 miles, but if this isn’t suitable make sure you change this before entering the contract and if you do exceed your agreed mileage make sure that the excess mileage charge is not too costly.
And then there’s the wear and tear policy to keep in mind, as if you’re someone who doesn’t take particular care of their vehicles, you may find it a little hard to abide by what the terms and conditions say, as some may even stipulate that you can’t smoke inside the vehicle.
Vehicle leasing isn’t for everyone, but if you’re the type of person who likes a new car every few years, you look after your cars and don’t mind paying for them on a monthly basis, it could be the best way forward.