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Leasing Vs Buying A Car: What Should Be Your Main Consideration?

cars
our car may be worth less than you believed it could be simply by buying from new

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8 April 2015

Leasing Vs Buying
To lease or to buy your next car may depend on which model you are after

BUYING a car is one of the most important decisions you can make, both in your personal life and (albeit to a lesser extent) for your business. From visiting numerous dealerships to hunting online, we are constantly striving to find the ideal car at the ideal price. Whether it be buying outright or leasing, there are numerous ways to own a vehicle. We take a look at the advantage and disadvantages of either leasing or buying a car.

It is a well-known fact that the second you drive a car off the lot it depreciates. New cars will often lose more than half of their value in the first three years of ownership. Such depreciation of cars means that although buying a new car can be cheaper than it once was, it may not be the best deal for you. Your car may be worth less than you believed it could be, so what is your best option?

Leasing a Car

Leasing a car is something that has become increasingly popular over the world in the last few years, with numerous UK dealers now offering consumers the option to lease a vehicle at a fixed monthly payment.

Under a leasing scheme, you can add extra charges based on maintenance and servicing. Leasing also relies on a standard deposit on the car, usually three to four months payment upfront, with the overall initial payment being much lower than the buying a car outright.

One of the major advantages of leasing a car is that following the end of the lease, usually two/three years, the car is handed back to the owner who is then responsible for selling the car, meaning that you can effectively trade in for a new model.

Does It Simply Depend on Depreciation?

Renting a car can prove to be much more expensive than buying a car outright. While monthly payments are relatively low, over the lease you will pay more. However, the advantage of leasing depends wholly on the depreciation of the car and what happens once you want to sell it on.

Research from Which shows that a car such as a VW Scirocco only depreciates by 37% from its original value after three years meaning that it cheaper to buy outright. If you wish to sell a Scirocco after a three-year period, you will normally not make a huge loss at the initial price.

Conversely, the same report found that a Ford Mondeo retains just 36% of its value after three years. This means that when buying this vehicle it is considerably cheaper to lease and the onus of selling the car on remains with the dealer.

What To Consider When Leasing

There are numerous factors that can determine if you should lease or buy a vehicle outright such as:

•    The overall cost of leasing a car in the long-term
•    If the VAT charged on the purchase cost or leasing payments is recoverable
•    Your overall stability on making the numerous monthly payments
•    Estimated mileage and use of the car
•    Whether the vehicle will be used by businesses or simply one person
•    How much you use the car. Will it be worthwhile?

Buying a Car Outright

While purchasing a vehicle can be an expensive one off payment, or numerous instalments, once you have purchased the car, it is yours outright. The maintenance, VAT and other aspects of owning a car lie purely with you. Whilst it is an expensive purchase, once it is yours there are no more monthly payments in contrast to a lease.

When you purchase a car, it is likely to depreciate, however unlike a lease you cannot simply return the car for a new model or updated contract in three years. Whilst in some ways this may seem to be a disadvantage, it means that if your car is well maintained and still operating, you will get a longer return on your investment. E.g. A lease of a car for three years could cost 6k, but you could purchase a car for 6k that could last ten years.

When you lease a car you are arguably paying the same amount of money for something that is constantly depreciating, when you buy it outright you have the option to sell the car whenever you want.

When buying or leasing a car it is imperative to do what is best for your circumstance: if you have your heart set on a car that cannot be leased it may be a better option to save and pay outright; however if you have financial stability and do not want the hassle of selling, then perhaps buying outright is the best value for money option. However, if you wish to own a car and be flexible in the model and upkeep of the vehicle, then leasing could be a useful aspect of car ownership.

John Hazlett is Managing Director at The Van Warehouse, a leading UK van leasing broker supplying new vans to businesses throughout the UK at hugely discounted rates. He also owns a prominent UK car leasing company, Frontier Vehicle Leasing.

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