Reviews 4 Cars

Leases and purchase loans are simply two different methods of automobile financing. One finances the use of a vehicle; the other finances the purchase of a vehicle. Each has its own benefits and drawbacks.

When making a ‘lease or buy’ decision you must look not only at financial comparisons but also at your own personal priorities - what’s important to you.
Is having a new vehicle every two or three years with no major repair risks more important than long-term cost? Or are long term cost savings more important than lower monthly payments? Is having some ownership in your vehicle more important than low up-front costs and no down payment? Is it important to you to pay off your vehicle and be debt-free for a while, even if it means higher monthly payments for the first few years?

So we find out that making a lease-or-buy decision is not quite cut and dry. There are some things you need to consider. Let’s take a look at some of these things.

First, it’s important to understand that buying and leasing are fundamentally different, not just two versions of the same thing.

When you buy, you pay for the entire cost of a vehicle, regardless of how many miles you drive it. You typically make a down payment, pay sales taxes in cash or roll them into your loan, and pay an interest rate determined by your loan company, based on your credit history. You make your first payment a month after you sign your contract. Later, you may decide to sell or trade the vehicle for its depreciated resale value.

When you lease, you pay for only a portion of a vehicle’s cost, which is the part that you “use up” during the time you’re driving it. You have the option of not making a down payment, you pay sales tax only on your monthly payments. You may also be required to pay fees and possibly a security deposit that you don’t pay when you buy. You make your first payment at the time you sign your contract - for the month ahead. At lease-end, you may either return the vehicle, or purchase it for its depreciated resale value.

As an example, if you lease a £20,000 car that will have, say, an estimated resale value of £13,000 after 24 months, you pay for the £7000 difference (this is called depreciation), plus finance charges, plus possible fees.
When you buy, you pay the entire £20,000, plus finance charges, plus possible fees.
This is fundamentally why leasing offers significantly lower monthly payments than buying.

Leasing is basically a method of paying for a use of a vehicle over a specified period of time. Don’t get hiring confused with leasing as they are very different. While it is possible to hire a car for as little as X amount a day or for a few hours, leasing is typically for 24 months. Majority of contract are based on 3 X 23 meaning 3 payments deposit followed by 23 payments monthly (2 years) other contracts are available to suit your needs the longer you lease contract the cheaper the monthly payments.

Leasing companies have access to exclusive vehicle discounts due to buying bulk vehicles from a range of suppliers offering various prices for vehicles. The leasing company then sources the cheapest supplier for the vehicle, some companies aim to make large profit margins where as some go for volume by offer savings to their customers.

If an ordinary customer walked into a showroom and purchased a vehicle for £20,000 then the leasing company has access to purchase that vehicle cheaper then the ordinary customer. Once the cheapest supplier has been sourced for a vehicle then the monthly price would be calculated cover the depreciation over the term. At times manufacturers strike a deal with leasing companies to purchase X number of cars at exclusive bulk prices, this then means the leasing companies has to sell their X number of cars ASAP and therefore offer discounted rates.

So the ordinary customer is out of pocket by £20,000 and is stuck with the vehicle and if they would have leased the vehicle they would only be paying the depreciation monthly and hand the vehicle back after the contract has ended, not having to worry about reselling the vehicle.
It should now be clear to see now if you have you business head on that why should I have £1,000’s tied up in a vehicle when you can keep you cash flow healthy and pay the minimal depreciation on a vehicle. So with that £20,000 not tied up in a vehicle you can invest that money elsewhere. All lease vehicles from our selves also come with manufacturer’s warranty, so there’s peace of mind.

For a VAT registered business leasing a vehicle is ideal, due to a number of reasons. When a vehicle is leased on a business it is seen as an expense, this means that instead of paying the tax man the good round sum you can lease a vehicle out of it, also VAT can be claimed back 100% on a commercial vehicle or 50% on a car.

At the normal end of a lease, you may have the following options:
- Return your vehicle, extend your lease, re-lease, purchase, or trade.
- Depending on the details of your particular lease situation, some of these options may be  available to you while others will not be.

About a month before the end of your lease, you will be contacted by your leasing company. They will instruct you regarding having your vehicle inspected and returned to them. Normally, the return is made to a dealer, from which the lease company will pick up the vehicle.

They may also remind you of your option to purchase your vehicle and provide you a purchase buyout price, which may be a better price than stated in your lease contract. They may also offer to extend your lease for specified terms.

You may be attracted to the very many benefits of new car leasing, however you should consider the following questions below before making a decision. Like any type of finance is it important to ensure you are not caused any great deal of unhappiness and unnecessary financial pain.

Do you think you’ll want to end your lease early?
Car lease contracts are purposely written to discourage, even prevent, early termination. To do this usually means you will pay a termination charges and all remaining payments. Therefore, if you lease, you should have a stable lifestyle and a good job situation to minimise the possibility of needing to terminate early. Wanting or needing to end a lease early is the most common problem people have with leasing.

Do you typically know what mileage you do a year?
New-car lease contracts limit the number of miles you can drive in order to calculate the deprecation of the vehicle. The average mileage a year is 10,000-15,000 miles per year. If you exceed your limit, you’re slapped with “excess mileage” charges at the end of the lease. Sometimes, additional miles - if you know you’ll be driving more - can be “bought” up front at the time you sign your lease, at a lower per-mile cost.

Do you think you’ll want to customise your car, make modifications, or repaint?
A leased car doesn’t belong to you, it belongs to the leasing company. Therefore, you cannot make modifications and install custom equipment that alters the car. If you do, you’ll likely be charged for the cost of repairs to undo what you’ve done.

Do you mistreat your cars or fail to keep them in good condition?
Leasing companies require that you return their car at the end of the lease with no more than “normal” wear-and-tear. Anything more and you’ll pay for the damages. You are responsible for insurance, upkeep, and maintenance just as with a purchased car. Some people mistakenly believe the leasing company is responsible.

Are you emotionally attached to the idea of modifying your vehicle?
When you lease a new car, you have no ownership during your lease, unless you choose to buy at lease-end - which about a third of all leasers do.

Do you have a flawed credit rating?
Because leases typically require a smaller down payment and lower monthly payments, you generally must have a better credit rating than would be required for a loan because of the higher risk to the lease provider. If you have a history of making credit payments promptly and don’t have an excessive debt load, you’re going to be fine.

Do you like paying off your loans and driving your cars until the wheels fall off?
One of the benefits of leasing is that you can drive a new car every two, three, or four years. However, you’ll always be making payments. For many people this is an acceptable trade-off considering the benefit of always having a new car that is always under warranty. If you prefer to make higher monthly payments but then have a period in which you are payment-free, then buying is a better option for you than leasing.