When the time comes to get a new car, there are numerous options out there. You could buy outright (usually a second hand model, but you might be lucky enough to be able to afford a brand new car off the forecourt), buy using a car loan, or look into car leasing. Which one you choose depends on your financial situation, the type of car you want, and what you want from that car.
Car Leasing vs Buying: Investment
As investments go, buying outright is usually the best. As a cash buyer, you might be able to negotiate a discount, you don’t have to play interest to the bank and you have the car (minus depreciation) to sell on before you search for a new one. Buying using a car loan means that you can pick something newer and with a better spec than you can afford in cash. You will also be able to cash-in the vehicle once you have made the final payment, but the profit is eaten into by depreciation AND the interest you paid as part of the car loan. Of course, the equity in a newer and more advanced model will be more than on an older and more basic car.
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Leasing isn’t an investment at all. You stump up an initial payment and then effectively rent the car from the finance company and have to give it back at the end with nothing to show for your cash. In addition, if you overrun your agreed mileage or there is damage on the vehicle, you can be charged.
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However, cars aren’t just about investments, and there are some situations in which leasing might work out much better for you. Take a look at this DadsNet guide to find out more.
Car Leasing: Pros and Cons
If you want a brand new vehicle every couple of years, car leasing could well be the best way to do it. You usually pay a much smaller upfront payment than on a car loan and the monthly payments can be more reasonable too.
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This is because part of the calculation takes into account the amount of money the car loses in value over the term of the lease. If you pick a vehicle with a decent spec from a prestigious brand, the payments will reflect the fact that the motor will keep a good deal of its value and your car lease costs won’t be as much as you might expect.
This works well for petrolheads who want to unleash their inner-Jeremy Clarkson with the latest set of fancy wheels, or someone who heads off to meet clients in person and might feel they need to ‘look the part’.
You will also get the manufacturer’s warranty to cover you for the term of the deal and usually have your road tax and breakdown cover paid for too. In addition, some lease companies add servicing into the package, but generally this is a paid add-on.
On the downside, you don’t own the car and, at the end of the lease, you have nothing left but memories to show for all the cash you have spent. In addition, you will have to pay for the damage caused to the vehicle while it was in your care. If you have kids, you might want to ban them from eating and drinking anywhere near your motor and have plenty of wet wipes on hand for cleaning up mud, grease, dirt and everything else children pick up as they go about their day.
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There could be big charges to pay on external damages too and, if you write the car off and the valuation of the finance company and insurance firm differ, you might have to make up any shortfall. You also have a limit on the miles you do in the car. Anything you do over that during the time you have the vehicle will be charged to you and some companies ask for excessive amounts.
Buy or Lease a Car?
If you don’t have the cash for a big upfront payment, but you want something new and flashy, leasing might be better for you than buying. The initial down payment on a new car bought with finance is usually much more than the opening leasing payment. If you know you can keep the car in good condition and the mileage limit is a realistic target for you, then car leasing is a decent option.
However, if you want to actually own the vehicle (and the capital) at the end of the repayments and not have to worry about how far you drive, that clumsy neighbour dinking your bumper or how many times your kids are sick all over the backseats, you might be best advised to buy.
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What works best for you? Let us know why you bought or leased in the Comments below.