Friday 19 May 2017

Finance Fridays – Buying v Leasing a Car

We were looking at workplace injuires for last week's Finance Fridays. This week we are talking about buying and leasing cars. Having a car is an expensive business and how you finance getting one is a tricky choice. Do you buy one yourself and sell it when you choose to or lease it over a set amount of time? Let's have a look at some of differences between buying or leasing a car.

Buying a car 

Financing the whole value – There are many ways to fund a car purchase but you will need to find the whole amount upfront. This can be done by either saving up and buying it entirely with cash or using a combination of part exchange, cash and/or a loan.

Finding the right loan – If you need a loan you can either opt for a general loan which allows you to spend the money on what you wish or one that is secured against the car. The type of loan you use will have an impact on the overall ownership status of the car. 

Choice of prices – As you can look at new and second-hand cars you can find a car that suits your budget. You can also negotiate with the dealer on the price.

Pick the model you want – You can search for a particular car in the colour you want. You can also add your own modifications when you want to.

You are fully responsible for it – From MOTs to taxing it plus annual services and other maintenance costs you will be the one who needs to arrange and pay for it.

You own it – This depends on the type of financing you have on it but if you pay in cash or use a general loan it is yours. Cars are a depreciating asset but still an asset. If you need to raise some money you can sell it. Once all the payments have been made on it and you are happy with the car you could have a number of years free of any monthly repayments.

You can sell it when you want – If the car no longer fills your needs you can sell it and get some money back on it. This could be because you need a bigger car or you no longer need it for commuting. Be aware of depreciation costs so if you have a loan against it you may not be able to pay off the remaining amount straight away with the money you receive for it.

Leasing a car

This is about personal lease cars rather than those leased by a business or provided to you by your company.

You can get a brand new car every two to three years – If you like to be the person with the latest model then leasing could be for you. Alternatively you may feel happier driving a new car as it is less likely to have mechanical problems. Also newer cars should be more efficient and environmentally friendly.

No need to worry about MOT – If you take out a standard three year lease on a new car then it won't need an MOT. Leases of over three years mean you will be required to put the car through a MOT. With some leasing agreements you can also get VED (aka car tax) and maintenance included.

Initial rental fee – You will usually have to pay an upfront amount and then monthly payments after that. If you already own a car you could sell that one to cover the initial fee otherwise you will need to find the funds somehow.

Cap on mileage – As the leasing company needs to sell the car on at the end of leasing period they usually put a limit on the amount of miles you can do in a year. This is because the number of miles on the clock can affect the resale price. If you go over the mileage limit you may need to pay a fee or penalty. This could easily happen if you change jobs and your workplace is further away or you start doing more leisure trips.

Fixed contract – When you take out a leasing contract you will need to keep up the payments. If need to break the contract for whatever reason you may find it impossible to do so in the first 12 months. After that time you may still need to pay a percentage of the overall amount owing for the remainder of the contract.

You don't have an asset – The car is always owned by the leasing company so if you need to raise money you won't be able to sell the car. You will be classed as the registered keeper of the vehicle and the leasing company as owner.

Do buy or lease your car? Which do you find works best for you?

This is a collaborative post.

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Finance Fridays

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  1. I had never considered leasing a car, it looks like it's something worth thinking about.

  2. We have bought our cars in the past, but would actually consider leasing one next time, espeically as I don't do huge distances in mine.


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