benefits of car leasing
Car leasing is well-established in the United States where one in four vehicles is leased - however, it has taken much longer to catch on in the UK. Now though, many UK drivers are starting to consider car leasing a better option than taking out a car loan or buying a vehicle outright. So why is leasing proving popular?
Why car leasing is worth considering
It`s no secret that cars depreciate faster than almost any other significant purchase we make in our lifetimes. Typically, a new car will lose around 50 per cent of its value within three years so by taking out a car loan you are simply paying towards something that is losing its value with often significant amounts of interest.
By contrast, with a car leasing deal you pay the difference between the retail value of the car (what it is worth when you start the lease deal) and the residual value of the car (what it is estimated to be worth at the end of the leasing term). Then, rather than take control of an asset that has lost part of its value and have to deal with reselling you can walk away and take out a lease on a different car.
So what are the main reasons to consider car leasing?
Here`s a quick rundown of some of the advantages of car leasing:
- The car is not yours to keep - Though some people prefer owning a car outright, for many the key advantage of car leasing is that they don`t take control of an asset that is depreciating and return the vehicle at the end of the leasing term. For those interested in keeping the vehicle, some companies offer personal contract purchase deals with an option to buy at the conclusion of the leasing contract.
- Reduced repayments - Leasing payments will typically be between 35 per cent and 55 per cent cheaper compared to repayments on a car loan.
- Fixed payments - You will know exactly what you have to pay each month.
- No large deposit - With most car loans you will be required to pay a lump sum upfront before your monthly repayments begin. With a leasing deal this is not usually necessary although some companies may ask you to make several months worth of payments upfront.
- Maintenance and tax - Typically maintenance and road tax will be covered as part of a car leasing deal meaning all you have to worry about is fuel and insurance.
- You can change your car every few years - At the conclusion of a leasing term you can take out another lease on a brand new vehicle meaning you can drive a new car every few years.
- Access to better cars - As car leasing payments are based on the difference between the retail value and the residual value of a car, you will pay less on vehicles that hold their value well. This means that luxury cars, such as those from Mercedes and BMW, are more affordable because they tend to retain their values over time.
Is there a catch to car leasing?
Remember you will be bound by the terms of the car leasing contract. As your payments are based on the residual value of the car at the end of the term you will be given a strict mileage cap - if you exceed this mileage limit over the course of the contract, you may be penalised.
Also remember you will need comprehensive car insurance as the vehicle is never yours to own - use a comparison website to search for affordable car insurance quotes.