The growing popularity of car leasing means more companies are considering leasing their vehicles. UK Construction takes a look at the advantages of leasing vehicles.
Personal car leasing has long been a popular method of affording to drive around the world. In the United States, around one in four vehicles on the road are leased. The popularity of financing a new car in this manner is now growing rapidly in the UK.
The economic crisis of 2008 hit the new car sales market hard but sales have been rising steadily since 2012. One of the main reasons for this is rise of the lease market and the two main types of leasing deals – Personal Contract Purchases (PCP) and Personal Contract Hire (PCH).
The car industry created the PCP as a way to stimulate growth in the struggling new car market and have been able to offer cheaper deals due to the low interests rate. According to the Society for Motor Manufacturers and Traders (SMMT), around 75% of vehicles bought in 2015 were registered through Personal Contract Purchases.
PCPs deals are popular because they provide a great deal of flexibility and lower monthly payments. A fixed monthly fee to use the car is paid for an agreed time period and a set number of miles. They also provide the option of being able to buy the car outright at the end of the rental term by making a ‘balloon payment’.
Personal Contract Hire arrangements differ in this regard, as there is no option to purchase the car at the end of the lease period.
Traditionally these financial arrangements were targeted towards businesses, particularly those operating large fleets of vehicles, but competitive deals make them attractive for smaller companies and individuals.
The main benefit to leasing rather than buying is how quickly a new car depreciates in value. The old adage goes that thousands drop off its value as soon as it’s driven out of the car showroom. A leasing agreement allows you to pay an agreed amount per month for something that is constantly decreasing in value.
There are of course other advantages to leasing a vehicle. On average, monthly repayments can cost between 35 – 55% less than the cost of repaying a car loan.
With a PCP arrangement, the deposit required will be much lower too, usually amounting to three monthly payments, meaning there are no huge upfront costs.
PCH usually include a large deposit of between 20% -50%, with the balance of the vehicle paid over the duration of the lease agreement.
In terms of choosing a car, the current cost of leasing means you are likely to be able to afford a car that you may never be able to afford if you were buying a vehicle. For example, a C-class Mercedes can cost as much a Ford Mondeo in terms of monthly repayments.
Depending on the PCP arrangement, the cost of servicing, maintenance and even road tax could be included in the cost of the lease.
Also, leasing a vehicle means you are free to change cars at the end of the lease period whether that be two, three or fours years, and take advantage of advancements in technology and fuel efficiency that comes with newer models.
Cars that tend to depreciate less in value are usually available at a competitive rate. Traditionally, German manufacturers such as Volkswagen, BMW, Mercedes-Benz and Audi depreciate less and because of this higher residual value, are often amongst the best deals available. There are, however, numerous enticing offers on various manufacturers so it is worth having a look around for the best deal.
It is worth noting that four out of five PCP agreements see the car returned and the option to make the balloon payment declined. It maybe that if you know that you have no intention of ever owning the vehicle outright to compare the costs between PCP and PCH agreements, as a PCH may end up being a cheaper alternative.