Buying VS Leasing – Your Choice For Your Next Car
Posted: 18th May 2017
It comes for us all in the end. The need to acquire a new car, either for our first time or to replace an old car that has reached its time to leave us. Modern society offers us various ways of doing the same thing and the same goes for getting a new car. You can either buy a car outright, finance a car or lease a car.
Buying cars outright has become less and less common in recent years, with more of you opting to acquire new cars through finance and leasing options. There are pros and cons for both finance and leasing.
Buying it outright with cash
There was a time when buying a car outright with a lump sum of money was the most popular option. However, with increases in price and the retraction of available money, this option has dropped in popularity. Most people do not have the adequate money to purchase cars outright.
The pros of buying a car in one go are that you avoid additional interest costs on top and you take full ownership of the car immediately. You can do with it as you wish. However, the cons are that you have to be sure you want that car. There is no flexibility with this option. Once you have purchased that car, you cannot hand it back. It is solely yours.
Financing your car with PCP and HP
In recent years, the act of buying a car through credit and paying it off over a period of time through a finance agreement has increased in popularity. You can easily understand why. People may not be able to save up large amounts of money to purchase cars in one go. But that doesn’t mean they can’t afford to pay for cars on a monthly basis.
There are two forms of car finance. These are Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements. Both agreements work in similar ways but with a key difference. With both agreements, you have the option to pay a deposit, followed by a series of monthly payments for the duration of the agreement.
What happens at the end of the agreement is where PCP and HP agreements differ. With a Hire Purchase finance agreement, you pay those monthly payments for the length of the agreement and you then own the car. No further payments, no chance to give the car back. You will be the owner of the car.
With a Personal Contract Purchase agreement, you get more flexibility. It begins in a similar fashion to Hire Purchase agreements. You have the option as to whether to pay a deposit, followed by monthly payments. However, the difference is that at the beginning of the PCP deal, a balloon payment, known as the Guaranteed Minimum Future Value, is calculated. This Guaranteed Minimum Future Value (GMFV) is calculated to approximate how much the car will be worth after the period of the agreement.
When a PCP agreement ends, you are given the choice to pay off the GMFV in a lump sum or through another finance agreement. You also have the choice of returning the car to the lender with no additional costs. This is where PCP deals straddle the line between leasing and finance options.
Lease your car for a time
Leasing a car is catching up with finance deals to become the most popular option for acquiring a car. This is likely down to leasing having lower monthly payments than finance deals, attracting millennials to leasing a car. Contract Hire agreements allow you to drive a car for a period of time before handing it back.
It works in a similar fashion to PCP and HP deals in that you can place a deposit if you so choose and then you pay monthly payments for an agreed period. However, you don’t have the flexibility that you get with PCP agreements. At the end of the Contract Hire lease deal, you must hand the car back to the lender. There is no option to purchase the car and at no point do you legally own the car.
However, because you are never going to own the car, this results in these agreements having the lowest monthly payments of any leasing or finance deal. You also never have to be concerned about depreciation in the similar way you may do when buying a car outright or through a Hire Purchase agreements because you are just handing it back.
Which option do you choose?
It all comes down to personal preference and affordability when choosing which option to go for. Zero Deposit Car Leasing has a great selection of cars available to choose from and each is available through finance or leasing agreements. As is clear with our name, a deposit is not required for any of our agreements, meaning that if you can afford the monthly payments, you can get a car easily.