If you’re looking for a new car, you’ve probably been weighing up all of your options, whether it’s buying outright, a finance deal, or leasing.
Unlike the first two options, with leasing, you won’t ever own the car. But is that such a bad thing? Sometimes, leasing can be the most cost-effective solution — if you can get over not having an asset at the end of your contract.
Once you think like an investor you’ll realize that buying a car can sometimes be one of the worst investments you can make. It depreciates quickly and you have the worry of selling it on or getting it repaired.
How does a car lease work?
With a lease, you get a brand new car to drive during your contract. At the end of this period, you give the car back. The amount that you pay over the contract covers the amount the car depreciates in that period. Simple.
This is great if you like to upgrade every few years and don’t want the hassle of worrying about services and repairs further down the road.
Not so great if you develop emotional attachments to your car!
So, when is leasing a better option?
Deciding when leasing is cheaper really depends on how often you change cars and if you’re okay sticking to a mileage limit.
With a car lease, you agree on a maximum annual mileage limit. Mileage affects the rate of depreciation, so this allows brokers to determine your monthly payments.
If you exceed this, you’ll be charged heavily at the end of the contract. There is flexibility when it comes to setting your mileage limit. If you use your car routinely — for example, you commute to work five days a week, or go shopping every weekend — you should have no trouble estimating the miles you need.
As we’ve already said, a brand new car is one of the benefits of leasing. But why should you lease instead of buying outright or on a different finance deal?
- If you’re the kind of person who likes to upgrade regularly, then leasing can save you time and money. You won’t have to spend money on advertising or leave your car sitting idle as you wait to sell it before you can get a new one.
- One of the benefits of getting a new car every few years is that you’ll also be covered by a fresh manufacturer’s warranty every time you start a lease. This saves money on repairs and gives you peace of mind.
- You will spend less money on lease payments than paying a loan with interest.
- If something out of your control causes your car to devalue faster during your contract, the broker will absorb the cost. This could include new emissions taxes or a common fault found within that particular model.
Of course, there are some times when leasing isn’t the most cost-effective option:
- If you have trouble predicting how much you’re going to use your car, you may not get the full benefits of a lease. Once you’ve set a mileage limit, you usually can’t change it. If you stop using your car because you no longer need to commute to work, you’ll be paying more than you need to.
- If you know you’re not always as kind to your car as you should be, you may be in for a surprise at your contract’s end. If there’s any damage to the car when you hand it back, you will have to pay for repairs. Some damage, known as ‘fair wear and tear’ is allowed, but the definition of this can be vague and may change depending on your leasing company — so read the terms & conditions!
- If you like to hold on tight to your car until its grinding into dust, leasing might not be cost-effective for you. If you don’t mind not having the latest spec model or you enjoy DIY maintenance, you can get your money’s worth out of your vehicle if you look after it and hang onto it for years.
The Bottom Line …
If you’re in the market for a new set of wheels, it’s important to work out where you can save money. Leasing is a great choice if you like to keep on top of the latest trends, you don’t want the stress of reselling at a depreciated rate, and to cushion you from changing tax regulations or unforeseen technical difficulties.
If you’re someone who hits the road hard in your car or you put love and care into making a car last for decades, it’s maybe not for you. With all the points here, only you can decide if leasing a car is your most cost-effective option.
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