The debate between buying and leasing a car has been raging for at least a decade but increasing numbers of people are opting for a leased car option. This article will examine the advantages and disadvantages of both options.
1. Capital Cost
Leasing is a very attractive option for those who simply don't have access to the immediate capital to own a car outright. Of course buying a used car is a great way of overcoming this barrier as a lower capital outlay is required in the first instance. This option is not really available however for those wanting a new vehicle.
Leasing on the other hand is neatly packaged in monthly payments that won't leave a huge dent in your savings in the short term.
2. Hire Purchase Cost
Of Course if you can't afford to pay for your car in one single payment, hire purchase is an easy way to source your own vehicle. Whilst this may seem a good option for those determined to own their vehicle it can also be expensive. Finance agreements at dealerships often have high percentage rates of interest between 20-25%, meaning that you will be paying substantially over the odds in the long term for your vehicle.
Whilst leasing may not result in you owning a vehicle outright at the end of the agreement, it does cover many motoring related costs that a finance agreement with a dealership just won't touch.
Whilst buying your own car may seem attractive most suffer from high depreciation costs (a fall in value) in their first 2 years which can wipe about 20% of their value.
Whilst leased vehicles suffer the same effect you won't notice it so acutely in your monthly payments, the only people who will be directly effected will be the leasing company when they come to sell the vehicle at the end of the leasing agreement. For this reason depreciation can actually work in your favour on leased vehicles because most leasing agreements last between 2-3 years in duration at the end of which you are often offered the option of purchasing the vehicle. If you decide to exercise this option you won't be as significantly affected by the fall in value of the vehicle.
4. Associated costs.
After buying your vehicle you still have to pay out separately for insurance, car taxes, test charges to ensure the vehicle is safe, breakdown cover, cost of repairs, costs of auto theft or damage. Whilst these costs are also factored into monthly car leasing premiums, the leasing company will have more purchasing power than any individual, which means that these overall costs are still likely to be lower and are automatically covered by the terms of the lease. In addition car leasing companies offer a courtesy car if your main vehicle is off the road, something that you don't always get with independent insurance cover on a car that is owned outright.
5. Extended Test Drive
In essence car leasing is an extended test drive over 2-3 years, during which you can get a good feel for the vehicle and decide whether or not to purchase it at the end of the leasing contract.
Buying a car does not afford this luxury, so if you buy it and find it's not right for you, the only option is to sell, which can be a costly decision.
6. Contractual Agreements
Perhaps one of the biggest benefits of owning your own car is that unlike leasing there are no contractual agreements (unless you buy on HP). This means that if your financial or family circumstances change you won't be locked into a contract. Some car leasing contracts have heft penalties should you terminate or change the contract part way through.
This article has attempted to compare and contrast issues linked to buying or leasing a car. It has drawn attention to the fact that there are number of benefits and disadvantages to both options which will have differing effects on an individuals purchasing decisions.
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J Dawkins is the author of the website Friends & Money which is
dedicated to providing free debt resources , guides and information to help individuals with their personal finance management. You can also read the latest money making and money saving tips.
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