Leasing A Car vs Financing A Car – Which Is Better?
If you are considering getting a new car, you might be considering either going through a leasing company or a finance provider.
While financing a car is the ordinary method used to get a new car, in recent years leasing has become a far more attractive option; with many now comparing car leasing vs buying to decide what is right for them.
What is leasing?
In recent years, leasing has become a popular and attractive option for ordinary people and businesses. Lease deals involve, essentially renting, a car for a certain amount of time of anywhere between 1 and 5 years, while paying monthly installments.
When the agreed upon period expires, you hand the car back.
The principal forms of lease agreements for individuals in this instance are Contract Hire and Personal Contract Hire
What is Contract Hire?
This is the most common scheme for leasing vehicles whereby individuals get a new car for a certain period of time while making fixed monthly payments.
Once the contract expires, you have nothing more to pay (other than potential penalties) and return the car. Contract hires come with some conditions, such as a mileage limit.
What is car finance?
Car finance is an alternative way to buy a car. It has similarities to leasing deals, like making monthly payments for a set amount of time.
The biggest difference between car finance deals and leases is that, when the contract expires, you are either the owner of the car outright or have the option to be the owner.
For individuals, there are two forms of finance available – hire purchase and contract purchase
What is a Hire Purchase?
Hire purchase is the type of finance that most are familiar with whereby you make monthly payments for a set period of time (to the maximum of 5 years) and, once the contract expires, you have nothing more to pay AND own the car outright.
Hire purchase contracts do not have conditions like mileage limits.
What is a Contract Purchase?
Contract purchase agreements are very akin to HP agreements, but they differ as to what happens once the time period ends.
in Contract purchase, you have 3 options:
- Give the car back with no additional payments. This carries mileage restrictions
- Buy the car at the end for an amount agreed to prior, and
- Trade the car in and put the proceeds towards a new car.
What are the advantages and disadvantages of leasing?
With the many advantages to leasing it’s no wonder it has become so well liked. Here are a few of the upsides of leasing:
- You can have a new car every few years without the inconvenience of having to sell your current one
- Handing back the car at the end of the lease means that you do not have to worry about the hassle of reselling the car
- Another advantage of not having to resell your car means that depreciation does not have to be a concern
- Leasing a car can often be a cheaper option than financing
There are some disadvantages:
- You never own the car
- There are some restrictions, such as on mileage, and certain conditions
- They can be difficult to get out of early
What are the advantages and disadvantages of financing a car?
Let’s compare the pros and cons of leasing to financing. Here are some advantages to financing;
- You own the car at the end
- The contract is more flexible with various end outcomes to choose from, which is great if you cannot make your mind up
- Is great for those who want a new car for their own while making use of a bank loan
As always, there are some disadvantages:
- You do not have the option of getting a new car every few years
- it can be a more expensive option.
Which is better; Leasing or Financing?
The answer to this question will ultimately depend on your circumstances and what you want in terms of a new car.
If you are interested in having a new car every few years, without depreciation of your car being a concern, and making low monthly payments, leasing is the choice for you.
However, if you are more inclined to own your car at the end of your agreement without having any restrictions placed on you during, but cannot afford to buy the car off the bat, then finance is clearly the option for you.
There is no conclusive answer when it comes to whether lease or finance are better. They are suited to different people with different circumstances.
The best idea is to talk to the experts at Lease Loco before deciding which option is best for you!
[…] you need to decide whether you are purchasing a car outright or if you are going to take the auto financing route. If you take this route, then you should not exceed 15% of your monthly income so that you do not […]