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Leasing vs Buying

 Leasing vs Buying a car blog comparing PCP, HP and Lease

We often get questions such as: ‘how does a lease work?’, ‘do I own the car?’, ‘Do you deliver the vehicle to me?’’. In this article, we are going to answer these questions and compare leasing vs buying a car.

Vehicle Leasing / Personal Contract Hire (PCH) – What you need to know

To lease a car is essentially like renting a car for a long period. You never own the car, and therefore never have the burden of the depreciation and breakdowns, but still benefit from getting a brand-new car every few years with the newest models and latest technology. Most lease contracts are from 2-4 years, and once the contract is up to you simply hand the car back and get a new one.

It can be confusing when searching for lease prices and information online. Some deals will appear too good to be true and when you enquire further, you find that the vehicle is no longer in stock or extra costs such as metallic paint, upgraded wheels, etc that are not included in the headline figures on the advert. Using a broker helps to take the confusion away by them shopping around on your behalf. A broker has access to a whole range of manufacturers and lease funders to pair the best-priced car with the cheapest rental from a lease finance provider. The quotes provided will be for actual vehicles that are available with all the options and costings clear, so you know exactly what you are getting, which is rarely the case with car leasing comparison websites.

Throughout the year, lease funders will commit to a set number of vehicles for a campaign which will often be referred to as a ‘stock offer’ or ‘tactical campaign’. These will always be the best value vehicles as they are heavily incentivised. However, once stock has gone, the campaign will end. To get the best deal, you have to be prepared to compromise. 

Things to consider when leasing:

-       You can reduce monthly rentals by paying more upfront (advanced rental)

-       Road fund licence is included in the rental

-       The latest vehicles with up to date technology and safety equipment

-       Fixed monthly payments

-       Options to include maintenance and tyres in the monthly rental so no extra spend

-       Mileage limits on the contract with over-mileage charges.

-       Early redemption charges

-       Seen as a monthly expense rather than a large vehicle loan.

-       You do not own the vehicle.

 

Personal Contract Purchase (PCP)

If you are wanting to have the option to own a vehicle then one method is PCP finance. You will defer a proportion of the value until the end of the term which means that you can keep the monthly payments. This is often referred to as a ‘Balloon Payment’ or ‘Guaranteed Future Value (GFV)’. Once you have paid all payments including the GFV, ownership title will pass to you. This balloon payment is designed to be below the trade value of the car by the end of the agreement based on your estimated mileage, so you have some positive equity in the car. External market factors can mean that this isn’t always the case and you can find that a vehicle will be in negative equity at the end of the agreement. As you are also paying less off the loan each month, people often find they are in negative equity through most or all of the term. At the end, you have the choice to:

1)    Pay the balloon and keep the car (generally done if you have positive equity)

2)    Sell/part exchange the car at face value, retaining any positive equity or using it as a deposit towards your next vehicle.

3)    Sell the car back to the finance company for the cost of the GFV to clear the finance – often referred to as ‘handing the car back’ (usually done when in negative equity).

 

Things to consider when using PCP:

-       Balloon payment at the end of the contract

-       Even though you are not paying back the balloon over the monthlies, you are still borrowing the full value and paying interest on the full value.

-       Fixed monthly payments

-       Road fund licence must be paid in addition to the finance payments

-       You don’t fully own the car until all the monthly payments have been made and the final settlement (balloon) is cleared but are liable for its upkeep and depreciation.

-       If handing the car back, you are subject to excess mileage and wear and tear policy

 

Hire Purchase (HP)

Another option for funding a car is HP and this is a more traditional loan where you spread the payments equally over a fixed term, typically 2- 5 years. A longer period will bring down the monthly payments, but you will pay more interest. Shorter will be a higher monthly cost but you less interest on the amount borrowed. With HP there is no mileage cap. You will pay down the equity in the car quicker than a PCP as you are not deferring any balance to the end, meaning you will own more equity in the car sooner. 

 

Things to consider when using HP:

-       Typically, higher monthly payments.

-       Full liability for maintenance and depreciation.

-       No option to ‘hand the car back’

-       Road fund licence must be paid in addition to the finance payments

-       Generally, future interest is rebated if settled early and with no early settlement penalties.

 

When considering Leasing vs Buying if you think that having a brand-new car every few years sounds appealing, you like to have a fixed monthly motoring budget and you don’t want to have to deal with depreciation or selling your car, then leasing is probably going to be your preferred option. If you would like to own a car, would like the option to personalise it and tend to keep your cars for a long time then it would be worth considering HP finance. PCP is somewhere in between HP and Leasing; by deferring a payment to the end, you can generally afford a more expensive car within your monthly budget – but don’t be fooled – you are still borrowing the full amount and still liable for the depreciation.

If you are interested in a used car, check out our website www.srkcars.co.uk we have HP and PCP finance options available to suit your preference. If you are interested in leasing a brand new vehicle check out our dedicated leasing website at https://srkleasing.co.uk/ for the best car leasing deals which are updated daily.

 

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