Is It Better to Buy, Lease or Hire-Purchase a New Car?

Buying a brand new car is one of the bigger purchases we make — not quite as big as buying a house, but significant none the less.

For many of us, money is always an issue and we can’t afford to spend a great deal of it unwisely. As such, when planning to buy a new car, it’s important to get the best deal you can.

Buy, lease or hire?

There are a variety of ways to buy a new car. Of course, the simplest option is to make an outright purchase: pay the advertised price and drive away owning your new car. You can also take out a lease, paying a certain amount each month to the dealer but then handing the car back when the lease is over. Or you can take out a hire purchase plan, whereby you have use of the car while you pay off the purchase price in installments — but you don’t actually own it until you make your last payment.

Let’s look at the pros and cons of each method:

Option 1: Buy

Buying outright basically means that you do not have to plan ahead or keep to a regular budget for however long it takes to pay off the car, so there is a great sense of freedom with this option. After all, the car is yours once you’ve handed your money over, and the only things you are left to pay out are running costs, such as gas, car insurance and taxes. The catch is that you need to have the money available, whether it comes from your savings, or you take out a personal loan to cover part or all of the sum. Yes, you could also consider paying for your car with a credit card. This provides you with payment protection and may also include rewards — but the high interest rate you’ll be subjected to over time if you don’t pay off the card immediately is a huge financial drawback.

Option 2: Lease

Entering into a lease agreement with a reliable car dealer to pay a set amount each month until the purchase price is reached is another option. Not only will you have the use of the car while paying for it, but you’ll also have your servicing and maintenance covered, provided you stay within the stipulated mileage limit. With this option you don’t have to worry about depreciation and you have more flexibility when it comes to payment terms, which usually range from 12 to 36 months. The catch here is, once the purchase price has been reached, the car becomes the property of the dealer once again — which means you ultimately pay for a car that you never own. Other potential drawbacks are that you typically need to make an initial deposit, and the monthly costs can sometimes be higher than if you had bought the car outright.

Option 3: Hire Purchase

A hire-purchase contract has many similarities to a traditional lease in that you pay for the car over a set number of months; the difference is that you’ll actually own the car once the purchase price has been reached. As with a lease, you’ll still have to pay a deposit, but it’s usually significantly lower, and the interest rate is often very competitive because it’s a popular finance option for buying cars, being quick and easy to arrange. However, it’s important to do your research carefully and run the numbers, because a hire purchase plan can work out to be more expensive than a traditional lease if it’s a short-term agreement.

No matter which option you choose, you can rest assured that there’s an available finance plan for buying a new car that will most likely suit you. The bigger decision is whether you want to own the car you’ll be driving around in, or whether you’re prepared to merely be its temporary custodian.

Photo Credit: Ian Sane