Should I Lease?
Leasing comes in many different forms but the most common is Business Contract Hire or Personal Contract Hire. This is where you effectively hire a vehicle for a period of time and at the end of the contract hand it back.
The one question that we get asked a lot is should I buy or should I lease. In short everybody is different and have different requirements so not one shoe fits all. Leasing is an ideal solution for many and if you would like a new(ish) car, change your cars on a frequent basis, need reliability, want to manage your costs then leasing is ideal for you.
If you are looking to keep a car for a number of years, generally I would say more than 5 years, you don’t like the idea of not owning a car, It’s going to be used as a work horse so maybe get damaged! You are going to be doing very high mileage, then leasing probably isn’t for you.
Compared to the cost of a new car and how quickly they depreciate leasing is a cost effective way of running a car, as Paul Getty once said if an item depreciates in value lease it, if it increases in value buy it.
How did it all start?
Leasing has always been popular in America and was introduced here in the UK by Ford over 20 years ago. Many of the big banks jumped on board and initially made big mistakes with the value of vehicles but traction took hold and from around 2010 we have seen increasing popularity in leasing. Although Ford brought it over to help move more cars it’s also been the downfall of the Mondeo as people switched to more prestige cars, although prestige cars' list prices are higher, their used value is also higher so it can be cheaper to lease a BMW than a Mondeo and that’s what many people are doing.
Most of this leasing was originally dedicated to the business sector but in recent years nearly all of the big leasing companies now offer both business and personal leasing with the key difference being the VAT element. A company can reclaim 50% of the VAT back on a car and 100% on a commercial vehicle.
Advantages of leasing
- A new car with the latest advancements.
- Don't need to worry about depreciation.
- Will meet all current EU emissions standards.
- Will remain in warranty so any faults will be repaired at the manufacture expense. This is becoming particularly prevalent now that cars are getting so sophisticated.
- A cost effective way to run a new car.
- Include maintenance in the agreement and all your tyres, servicing and wear and tear parts will be covered.
- Fixed monthly cost.
Disadvantages of leasing
Whilst there are plenty of advantages to personal contract hire, like most financial agreements, there are some disadvantages to look out for. These are the most common questions we see:
- Mileage restriction: You can set your mileage at the outset of the contract and if required change it during the contract. Should you go over your specified mileage at the end of the term you will be charged a pence per mile, this will be set out at the beginning of the contract and can range from 3.5ppm to 25ppm and sometimes more depending on the car. Most contracts are around 7 to 10ppm, taking 10ppm if you overrun your contract by 1000 miles then it will cost you £100 so not a big deal.
- Damage to the car: BVRLA are the governing body for the leasing industry and all the main lenders abide by their fair wear and tear guide and work with this. So for general stone chips, small parking dent, nick on the alloy wheel etc are all part of the fair wear and tear of the vehicle. A parking scuff, a scratch down the door through the paint, a cracked windscreen, these sort of items will be charged for. You can choose to do this yourself or check out what the company will charge you as we are finding that this can be the cheapest option these days.
- Stuck in a contract: If you take out a 3 year contract you are signing up to use the car for that period and the lender has worked out the costs associated with that period. New cars depreciate very quickly at the start and then tail off, so for most of the contract the lender is in negative equity. This is the same as if you buy a used car on finance. If you take out a used car on finance the chances are unless you have put down a large deposit that if you come to sell the car before the end of the contract it will be worth less than the loan amount until near the end of the contract. Should you want to finish a lease early you can speak to the lender and they will provide a settlement figure. It’s not fixed and fast but expect to pay around 50% of the remaining rentals.
Conclusion
Leasing isn't for everyone but for many, be it businesses or private individuals leasing can be a cost-effective way to run a vehicle.
With advancements in new vehicles and more and more electric vehicles coming on the market leasing gives you the security that if anything goes wrong with your new vehicle it will be covered under warranty, you don't have to worry about depreciation, that's the lenders worry! At the end of the lease, there's no need to go through the 'sell your car process' simply order your new vehicle and hand one back while the other is being delivered.
If you take out a loan of say £15000, you will be paying around £460pm over 3 years. Leasing starts as little as £120pm for a city car and for £250 a very nice mid-size cars, by the time to get to a budget of £400pm you could be driving a very smart BMW, Mercedes or Audi.
Why not have a look at some of our special offers to see what you could be driving.
If you have some questions and to see if leasing is for you then why not call us on 01242 500 007 or request a call back and we will give you free honest advice about the options available to you.