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Buying Outright or Leasing a Car: The Best Option

By: Garry Crystal - Updated: 8 Sep 2015 | comments*Discuss
 
Car Leasing Lease Contract Loan Payments

Buying a car outright usually means taking a loan or setting up a long term financing deal. Leasing can be an excellent alternative for drivers who are looking for a cost effective driving solution.

Leasing a Car versus Buying Outright

Buying a car outright does mean the driver is the owner after all financing payments have been made. It also means that the car owner is liable for repairs and running costs. When it comes time to sell the car the depreciation factor will also take a toll on how much the car is actually worth. For many drivers leasing is a cost effective option, especially on short term basis. Leasing a car can mean driving away with a new car including road tax and servicing as part of the car lease contract.

What is Car Leasing?

Car leasing is basically renting a car for a set period of time. At the end of the agreed time period the person leasing the car simply hands back the vehicle or can exchange for another car. The leasing payment amount is usually based on the difference between the actual price value of the car and the depreciation amount. If a car is worth £25,000 when leased and worth £19,000 after the two year leasing period, the driver will pay £6,000 over the contract period. There will usually be interest payments on top of the valuation figure and additional fees depending on the type of leasing deal.

The Benefits of Leasing a Car

Leasing a car will generally include making one deposit upfront, usually the equivalent of three or fourth monthly payments. Drivers who lease cars also have the opportunity of driving a car that would usually be outside of their price range. Once the lease contract has finished drivers can simply hand back the car without worrying about the need to sell. Additional extras with leasing can include car tax, servicing and insurance, but these will make a difference to monthly payment amounts. Drivers who lease cars can choose to change their lease cars every two to three years.

The Downside of Leasing a Car

There are some downsides to leasing a car including the possibility of vehicle repossession. If the contract terms and conditions are broken or the car leaser defaults on payments then vehicles can be repossessed. Extra charges can apply with a leasing contract such as extra mileage charges that will make a difference to the car depreciation. Additional charges will usually be applied if the car is returned before the agreed lease period ends. Any damage to the car will also usually incur additional fees and penalties.

Is Buying a Car Outright Better than Leasing?

Buying a car outright does mean ownership of the vehicle; at least once car repayments have been made. Car leasing can be a better financial option over the short term but will not be a good option over a long term period. Leasing will also mean that drivers will not own their cars unless they choose to buy at the end of the lease contract. Many people are attached to the idea of owning a car but buying a car, especially a new car, does not always make financial sense. Deprecation is a major factor when it comes to reselling and most people will lose money in the long run if they do buy a new car.

Fees and Penalties When Leasing a Car

Car leasing can save money over the short term when compared to buying. But drivers considering this option should be aware of the fees and additional costs that can come with car leasing. Points to consider when leasing should include:

  • Drivers who lease will usually have to arrange a full comprehensive insurance package
  • Delivery and registration of the lease car will usually incur additional fees
  • Servicing and road tax may be included in the leasing deal but not always; check lease contract before agreeing
  • There are different types of leasing contracts and these options should be discussed to ensure the right choice
  • Keep in mind the annual percentage rates, actual price of the car and the guaranteed future value
  • Shop around and compare different leasing companies and the deals they are offering
  • Long term leasing of one car over four or five years will not be a cost effective option
  • Customers should exchange cars every two to three years in order to keep monthly payments to a minimum
Car leasing can be a good deal over the short term if monthly payments are low. This type of finance option means customers are not tied to a loan contract for many years. Customers should always be fully aware of the terms and conditions of the lease contract before signing.

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