Is car leasing worth it? Use these 5 decision-making factors to find out
Although car leasing is catching on and more people lease cars every year, you still might be wondering whether it’s worth doing. After all, if you buy a car, you can use it as financial leverage in the future.
But the fact of the matter is car leasing isn’t for everyone; your circumstances and lifestyle will determine whether you choose to buy or lease a vehicle.
Here are some reasons you might want to lease a car:
- You like driving high-spec, newer vehicles.
- You enjoy driving something different every few years
- You don’t want the responsibility of ownership
Here are some reasons you might not want to lease a car:
- You want to drive a car after you’ve paid for it, avoiding any future finance agreements
- You aren’t interested in the latest car models
- You like having the car as an asset
Here are our five decision making factors that’ll help you decide whether car leasing is for you:
1. Do you want to own the car?
Before you decide whether to lease a car, you need to think about whether you want to own the vehicle.
Pros of ownership
- You’ll own the asset
- No hefty charges at the end of a contract
- No mileage limits
Cons of ownership
- You’re responsible for repairs
- Higher monthly payments
- You have to sell or scrap the car when you don’t want it
Pros of leasing
- Lower monthly costs
- Better warranty protection (new cars)
- Get a new car every 1-5 years
- Don’t have to sell the car when your agreement is up
Cons of leasing
- Mileage limits
- Have to stick to fair wear and tear guidelines
- You won’t own the asset at any point
Luckily, car finance is flexible, and three agreements are popular among British drivers: personal contract hire, personal contract purchase and hire purchase.
Personal contract hire (PCH)
Personal contract hire is for leasers only; there’s no option to buy the vehicle at the end of your contract; you have to hand it back. If you know you aren’t interested in owning a car, this agreement is for you.
Further reading: What is personal contract hire and how does it work?
Personal contract purchase (PCP)
The most flexible lease contract available, personal contract purchase, allows you to hand the car back or buy it with an optional balloon payment. This contract is ideal for people who want to keep their options open.
Further reading: What is personal contract purchase and how does it work?
Hire purchase (HP)
Hire purchase is for buyers only, there’s no option to lease the vehicle, and you go into the contract with ownership being the end goal. So this contract is ideal for people who know they want to own a car.
As you can see, there’s an agreement to suit you whatever situation you’re in, so think about ownership and whether it’s for you. And even if you don’t know, you can still progress!
Further reading: What is hire purchase and how does it work?
2. Can you afford to maintain a car?
It doesn’t matter what car you get; all of them experience problems sooner or later. The question is, do you want to deal with those problems? Maintaining a vehicle you buy is more expensive than maintaining a lease car, as most lease cars are new or nearly new.
In contrast, some people enjoy maintaining their cars and making improvements, so if you want it and don’t mind the additional cost, buying is probably for you.
Here are some ways you can save by leasing a car:
Tax
If you buy a car, you are the owner, so you have to tax the vehicle. If you lease a car on personal contract hire, you don’t have to pay any tax on the vehicle as you aren’t the registered owner. For example, if your car is £100 tax per year and your lease agreement is four years, you’ll save £400. That’s a good cut of maintenance took off there.
MOT
New lease cars are exempt from MOTs for three years, which means you could save £100+ if you lease a car over four years!
Maintenance and servicing
Most lease cars are new, although you can lease older cars. Newer cars don’t require as much maintenance as older cars, so you’ll save money there. You’ll also be able to add a maintenance package to your leasing contract in some cases, so you’ll take away some responsibility there.
Further reading: Who pays for maintenance on a lease car and is it worth it?
Depreciation
The primary way you’ll save money through leasing a car is from depreciation; as you aren’t paying to own the car, you’re only paying for its depreciating cost. This makes your monthly payments lower than buying the vehicle, meaning you save money in the process.
3. How much time do you have?
If you’ve written your car off or you’ve got a job that requires you to travel, you’ll need a car as soon as possible.
There’s a lot of research involved in buying a car; you want to make sure you get a vehicle that you want to own. This can make the process longer and a more considered buy than leasing a car.
When you lease a car, you know you’ll be able to give it back when your contract ends, so although the type of car you get is still necessary – it’s a lower level of importance because you can get a new one in 1-2 years.
However, if you have plenty of time to pick your car, you may want to consider buying. Of course, it all depends on what you want your vehicle for.
Think about when you need your car and how long you need it for. For example, if you’ve got two kids and you’re planning on having another baby in 12-24 months, it’s probably not wise to buy a Fiat 500; you’ll outgrow the car quickly, and you’ll have to sell it, too. Instead, you could lease a Fiat 500 for two years and then consider buying when your family is complete.
How long does it take to lease a car?
It depends on your circumstances and whether there are any complications with your application. But if everything goes smoothly, you could be on the road in 1-2 weeks.
For example, if you have all your documents ready, you know what car you want, and the leasing company do everything quickly, you could get up and running in a week.
If you want to take things slowly, you can. For example, if you’re looking but you don’t have a license yet, you can take things at your own pace. Find a leasing company that will work to your time goal, not theirs.
4. How long will the car last?
You can lease a used car, but is it worth it if you’re renting a car that’s 6-7 years old? The idea of leasing is that it makes brilliant vehicles accessible to people who wouldn’t usually drive them.
Cars that are 6-7 years old have already depreciated and may not even be the latest model, so leasing a car in its later years isn’t worth it. The vehicle will also be out of warranty, so you’ll have to take care of any repairs unless you bolt on a maintenance package.
If you’re looking to lease a new or nearly new car, then leasing is worth it; you get a high spec, reliable vehicle that’s covered under warranty. In addition, the car will last, and you won’t be the one who has to take care of it when it starts to experience problems.
If you’ve got your eyes set on anything older than five years, you may be better off exploring buying the car. But it’s all down to you; you could still a five-year-old car for two years if it suits your lifestyle and circumstances.
5. Are you susceptible to any risks?
Before you lease a car, you need to determine whether you’re opening yourself up to any risks, which could be practical or financial.
Is your job secure?
It is essential to protect ourselves and our families in the world we live in now, so you need to make financial decisions that won’t hurt you in the long run. For example, if you’re worried about your job or your industry has seen a dip since COVID, it isn’t wise to lease a high-spec car at the top end of your budget on a five-year lease. Instead, consider what you could afford if things didn’t work out as you’d planned, and don’t attempt to lease a car that’ll put you in financial difficulty.
Do you have any points, or are you close to being disqualified?
If you have nine points on your license, it isn’t a good idea to take out a five-year lease on a brand new car. One mistake could lead to a ban, which would mean you’d be paying for a vehicle you can’t drive and will never own. On the other hand, if you’re worried about leasing because of points, you could try a shorter lease term or buy a car, so you know you’ve invested in something that you can use when you’re able to drive.
Are you in any kind of financial difficulty?
If you’re experiencing any financial difficulties such as a CCJ, IVA or even bankruptcy, you should consider your options before attempting to lease a car. Some leasing companies will work with specialist lenders to help people suffering, but others may try to get you on a deal when it isn’t in your best interest. So ensure you do your research and work with the right company.
Even if you feel like you are at risk, your leasing company may offer you some reassurance and get you a deal that makes you feel safe and comfortable. Always talk to them before you make your decision.
Further reading: How to lease a car with bad credit
How does car leasing with Zero Deposit Leasing work?
Leasing with us is simple; all you have to do is:
- Search for a car or use our free soft credit check tool to see if you’re preapproved for car finance (no impact on your credit score).
- Liaise with your account manager, who’ll go through the application with you.
- Once we arrange your finance, you can pick your car up from our Blackburn showroom or arrange nationwide delivery.
