Welcome to the Friday Forum! Every Friday we want to give you answers to the questions that we hear most frequently as one of the United Kingdom’s leading comparison websites. If you have a question about how any aspect of the automotive industry works, leave a comment in the box below. We’ll pick the most thought-provoking questions and answer them to the best of our knowledge every Friday.
This week we’re looking to cover the basics of what to consider when undertaking a car leasing comparison, and how people can save money when they decide to lease a car.
Car leasing is different to an all out purchase
Hang on, does car leasing mean I'm buying a car?
No. Buying a new car and entering into a car lease are entirely different things altogether. When you buy a car, you take full ownership when you pay for it, whether that’s through a new car finance plan or walking into a dealership with a suitcase full of cash (winking at the salesman and big cigar optional should you choose the latter).
Car leasing is an entirely different proposition and, loosely speaking, there isn’t one set option people can choose. The current categories currently currying favour with the leasing community are hire purchase (HP), personal contract purchase (PCP) and personal contract hire (PCH).
Isn’t a car lease basically a form of finance?
You could argue that, yes, but there’s a lot more to it than that. The whole idea behind car leasing is that it offers a lot more flexibility to people that want to invest their money into a car, and potentially gives them a better choice of model to choose from if they budget accordingly.
So I essentially have three leasing options?
It depends on what your needs are. If you’re looking for a long-term car acquisition then these three options are the best route to take. There are other forms out there – for instance, a company looking to hire a car for a 24-hour period can be classed as a car lease. But today we’re going to be focusing mainly on the three main options, their pros and their cons.
Car leasing is a great way to get on the open road
Hire purchase is probably the most popular form of leasing across the UK at the moment. That’s because deposits are flexible and consumers get to own the car at the end of the deal. Interest rates can either be fixed or variable, and road fund licence is included, too.
Though HP is attractive because of its flexibility, there are things to consider before taking one on. VAT isn’t able to be reclaimed and there isn’t any cover included. Parties are also responsible for maintenance costs, and there are other, more-affordable leasing deals out there (PCP for instance).
Personal contract purchase
PCP has been around for a while, but has seen a recent spike in popularity. This is in part down to its incredible flexibility in nearly all areas – monthly payments are low, deposits can be negotiated, and people can opt to buy the car or try a new model at the end of the contract. Cars will also get a fixed Minimum Guaranteed Future Value (MGFV), meaning there’s no chance of depreciation. A road fund licence is also included.
A personal contract purchase is pretty binding, so if you aren’t happy with the way things are going after a few months then you’ll have to pay a termination fee if you have no intention of honouring the contract. You’ll never own the car either (hence the car leasing categorisation), unless you’re willing to pay the rest of the MGFV at the end of the contract.
Personal contract hire
PCH is also a wonderfully-flexible model, similar to PCP – the difference being that there is no final payment with personal contract hire. Terms are very flexible with many offering a low initial payment and optional maintenance cover. Costs are fixed, VAT is redeemable, there are no disposal matters to worry about and road fund licence is standard.
The main stipulation with PCH is that if the agreed mileage is exceeded then additional costs can build up over time. Like PCP, you will never own the vehicle outright, it will have to be returned to the leasing company at the end of the contract. A termination fee is also involved if the contract isn’t fulfilled.
People can get a brilliant car at fantasitc rates
A lot more flexible than owning a car, I see...
Flexibility is the watchword when it comes to car leasing, yes. It’s one of leasing’s core selling points, both from a financial and physical ownership point of view.
Any other differences I should be made aware of?
Oh, go on then...
- Repayments are fixed, as are interest rates, meaning there won’t be any outrageous additions hitting your doormat midway through the contract
- There are no resale worries to concern yourself with. You won’t have to trawl across the internet trying to convince people to buy your old car, and won’t have an old model clogging up your driveway
- Monthly repayments can be negotiated depending on how much deposit you’re initially prepared to pay. The more deposit you pay at the start of the lease, the less you have to pay on a monthly basis
- Typically, car lease quotes will include monthly payments that are between 30-60 per cent less than your average purchase loan
Search online for great car leasing deals
I’m convinced. where do I look, though?
Fantastic! Our services are on-hand to sort you out when you want to compare car leasing deals.
Brilliant. See you in the pub later?
Can’t, sorry, my turn to watch the kids tonight.