Leasing

Whilst leasing may sound attractive it is not for everyone, yet if done by the right type of person it can prove to be very cost effective and can minimise intense spending which is very appealing to many people. Basically instead of buying the car you are paying for using the care. In other words you are paying for how long you have the car as well as how far you drive the car in terms of the cars depreciation and potential value (usage).

If you lease a care for a fixed term of say 36 months, or 3 years, the leasing company will first of all asses how much the lease will cost them in terms of depreciation; say the leasing company bought a Ford Fiesta hatchback for £10,000, after a 3 year lease period it will be worth just over £4,000, so the depreciation value will be £6,000. So rather than paying £10,000 you will have the car for 3 years for around £7,000 (including the ‘money factor’) so you will typically paying just under £200 pounds a month for that 3 year period, which for many is much more digestible than taking out a loan for a car and paying a down payment on that.

On the other hand if you can afford to buy the car rather than lease it, this also has benefits in the long run, in that once you have paid of the buying price, you immediately start saving and if you own the car for long enough you will spread the original cost along a much longer period of time rather than the fixed rate which you get with leasing where you will be paying a certain amount every month. Ultimately, if you own a £10,000 car for 10 years in monthly terms it would work out at £83 a month, whilst if you lease say, three different cars, over a 10 year period you would be looking at spending around £20,000 which is obviously a lot more in the long run. Although again it is not as simple as it seems as the 10 year owner will potentially have to pay a lot in repair work and maintenance as for much of that 10 years the car will not be under warranty as opposed to the leaser who will always be driving a vehicle which is under warranty.

A big question to ask yourself is how much you value driving a new car. If you are in need of a 4x4 and would be happy with a used Land Rover Freelander, then it will be a far cheaper option for you than leasing one. Used cars depreciate much less quickly than new vehicles, but over say 9 years you would be able to get a new car 3 times (as most lease deals run for 36 months). It is all about your priorities.