Car leasing isn't just for business customers and it doesn't always work out to be more expensive than buying on finance when you get into the detail.
What is Car Leasing
For many of us, buying a brand new car is not possible without spreading payments over a number of years. However, is there any need to actually buy a car? It is a depreciating asset unlike a house so there is little long term benefit in ownership! Why not consider a long term rental or car lease?
In summary, car leasing (or contract hire) has a number of benefits:
You pay a fixed monthly amount for your car so you always know where you stand financially.
You are always driving the latest model and plate.
You don’t have to worry yourself with servicing, break down cover and other maintenance costs .
When its time to switch vehicle, you don’t have to negotiate part exchange prices and discounts on your next car, you simply hand the car back and take out another lease.
Note that the car remains the property of the leasing company at all times so it is never yours.
Who is Car Leasing For?
In the past, leasing has tended to be most popular within businesses as a cost effective and simple way to manage a fleet however more and more private consumers are now realising the benefits.
So, whether you are looking for a prestige saloon for your company car, a 4x4 for the family or a small run-about for town then you should consider leasing, especially if you like to drive new cars and change your vehicle regularly.
Note: When looking at leasing costs advertised on websites, personal leasing payments will always include VAT whereas business leasing payments will not. Personal leasing prices will therefore always appear more expensive.
How Does it Work?
Basically, you decide which car you want (including additional extras) and the amount you can afford each month. The leasing company will base their quote on the cost of the vehicle including any extras you select (e.g. metallic paint, sat nav etc) and then the estimated value of the vehicle at the end of the contract. The leasing company will use industry residual value data to predict the future value of the vehicle when you plan to return it to them. The vehicle age, mileage covered and vehicle condition will all impact upon this value.
You can adjust the rental payments by configuring the following:
The amount you are willing to put down as a deposit – usually 3 or 6 months worth of payments although this can be increased to reduce the monthly amount.
The length of contract you wish to take the car for. The usual range is anything between 1 and 5 years. The shorter the contract, the higher the monthly payment.
Your estimated annual mileage. The higher the mileage on the car at the end of the contract, the less it will be worth when the leasing company come to sell it on. Therefore the higher the annual mileage, the higher the monthly payments will be. If you exceed the annual mileage, you will be charged at the end of the contract based on an additional mileage fee.
What extras you want – you can include servicing, break down cover, road fund license and more in most cases.
How Does it Compare to Finance
At first look, leasing often appears more expensive than purchasing a car on finance and in many cases you are paying a premium for hassle free motoring. When you dig deeper though and consider the true cost over a 3 year period for instance then there is often little difference. Obviously actual figures vary greatly depending upon the car you are looking for but it is wise to do your sums before making a decision.
For example, take the new Golf GTI 3 door. At the time of writing, you can lease this on a 3 year spread rental contract with 10k annual mileage and full maintenance package for £362.70 per month with a deposit of £2,176.20. So, over the contract you will pay a total of £14,870.70.
At the time of writing, VW are advertising a special offer on their website based upon a Personal Contract Purchase finance contract. The contract is 3 years and 10k miles with balloon payment at the end (additional fees may apply if you choose to return it). The total amount you will pay for the Golf GTI 3 door over the contract is £16,076.37 based on a £7711.37 deposit and 35 payments of £239.00.
So, over the 3 year period, you would actually pay more on the PCP agreement (and there would be additional potential fees if you handed the car back at this point!).
If you continue to purchase then you would have to pay the estimated future value of the car which, based on the VW figures would be £12,894.55 making the total amount paid £29,030.92.
When you see a leasing deal being advertised, it will always state something like “3+35 months, 10k miles". This means 3 months payments as the deposit followed by 35 standard monthly payments. The annual mileage is 10,000 miles. Contracts are always advertised as ‘Business’ or ‘Personal’, sometimes referred to as ‘BCH (Business contract hire)’ or ‘PCH (personal contract hire)’.
On some websites you will also see the terms ‘Terminal Pause’ and ‘Spread Rental’. These determine the structure of the payments you make. The majority of contracts are Spread Rental and will be written as something like 3+35 for a 36 month contract. This means you pay a deposit of 3 months payments as your first payment and then the standard monthly amount for the remaining 35 months. A Terminal Pause or Terminal Rental would be written as 3+33 for instance. In this case, you pay 3 months payments as a deposit and then 33 monthly payments. The final 2 months of your contract would not require any payment. Spread Rental results in slightly lower monthly payments as you are spreading the cost across the entire contract length.
Where do I Lease From?
There are many car leasing companies and brokers operating in the UK who can arrange for a car to be delivered to your door so no need to go to your local dealership. The price you pay is determined by a number of factors and there can be considerable variation between companies so it is best to shop around. At Askaprice.com, we can help you find a fantastic car leasing deal. Simply complete our quote enquiry form.
Hints and Tips
Most leasing companies will often have special deals available where they have bought in stock in advance. In this case you can’t choose your extras but you may get a better deal!