Making a decision between leasing or buying a car can be a challenging task due to the distinct advantages and disadvantages associated with each option. The right choice for you will depend on your circumstances and priorities.
What’s the difference between leasing and buying a car?
The main difference between buying and leasing a car is who ultimately owns the vehicle:
• When you buy a car outright, it’s yours to keep
• When you lease a car, you’ll need to hand the car back at the end of the rental agreement
Leasing a Car
The most common car leasing method is through a personal contract hire (PCH) arrangement. This differs from a personal contract purchase (PCP), which is a type of car finance.
Although there are differences between PCP and PCH, they also share some similarities. To secure the vehicle of your choice, you are required to make an initial payment (a deposit for PCP and an initial rental payment for PCH) before making a fixed number of monthly payments as per the agreement.
At the end of a PCP contract, you can pay a one-off final payment to purchase the car outright, return it to the dealer, or use the vehicle’s current market value as a deposit towards a new car.
On the other hand, at the end of a PCH contract, you simply return the car to the lender and decide on a new leased vehicle.
Advantages of leasing a car:
1. Fixed monthly payments: With a lease, you’ll have a fixed monthly payment for the duration of the lease. This can make budgeting easier, as you’ll know exactly how much you need to pay each month.
2. Access to new cars: Leasing allows you to drive a new or nearly new car every few years, without having to worry about selling your old car or trading it in.
3. Lower maintenance costs: As most lease agreements cover routine maintenance, you may be able to save money on service costs over the duration of the lease.
Disadvantages of leasing a car:
1. Limited mileage: Most car leasing contracts come with a mileage limit, and if you exceed that limit, you will have to pay extra fees. This can be a disadvantage if you plan to do a lot of driving.
2. Higher long-term cost: Leasing a car can end up being more expensive than buying one in the long run, especially if you want to keep the car for a longer period of time. You will be paying monthly payments without any ownership of the car.
3. Restrictions on customisation: When you lease a car, you might not be able to customise or make any major modifications to the car, which can be a disadvantage if you want to add features or improve its performance.
Buying a Car
The main benefit of buying a car is that it’s yours. You only need to cover the costs of running and maintaining the car.
Advantages of buying a car:
1. Customisation: When you own a car, you have the ability to customise and modify the vehicle to your liking (as long as it complies with the governments legal standards).
2. No mileage restrictions: With ownership, you’re free to drive it as much as you like without worrying about mileage restrictions or paying any extra fees.
3. Resale value: When you’re ready to sell your car and if you take good care of the vehicle, you may be able to sell it for a reasonable price. This can help you recoup some of the initial costs of buying the car.
Disadvantages of buying a car:
1. Lack of flexibility: Once you commit to owning a car, you are tied to that specific vehicle for a longer period of time. This limits your ability to easily switch to a different model or make if your needs or preferences change.
2. Repair costs: Once the manufacturer’s warranty expires, you’ll be responsible for any repair costs, which can be expensive.
3. High upfront cost: Buying a car outright means you’ll need to pay the full amount upfront. This can be a financial strain for many people, especially if they are purchasing a new or expensive vehicle.
Overall, the decision to lease or buy a car will depend on your unique circumstances. Leasing can be a good option if you’re looking for lower monthly payments and the ability to drive a new car every few years, while buying can be a good option if you value ownership and building equity in your vehicle.