Deciding between leasing and buying a car can be tricky! Below, we explore the two options to help you decide which might be best for your needs and budget.
What's the difference between leasing and buying a car?
When you buy a car, you pay for it in full, which means it's yours to keep. When you lease a car you make an initial deposit and then pay monthly payments for a set term, usually between 2 to 4 years. At the end of the lease, you return the car.
Torn between the two? Here's a quick comparison:
Key differences
- Leasing is usually less expensive in the short-term, but buying can be better value for money in the long-run.
- Leasing often comes with mileage restrictions, and the car won't belong to you. But, it means you can drive new cars every couple of years without the commitment of owning.
- When you buy a car, it's yours to keep or sell as you wish, with no mileage limits.
- Lease contracts may offer maintenance packages to cover routine services, but you might still need to pay for damage or wear. When you buy, you're responsible for all maintenance and the car's depreciation.
Is leasing a car a good option?
Leasing a car could be a great choice depending on your needs and lifestyle. Let's take a closer look at the possible benefits and drawbacks:
Pros of leasing a car
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Drive a new car every few years. Leasing can let you upgrade to new cars regularly.
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Lower monthly payments. Monthly lease payments are often cheaper than what it would cost to buy a car outright.
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No need to stress about depreciation. There'll be no need to worry over the depreciation of the car or whether it has any re-sale value. Just hand it back over once the contract comes to an end!
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Road tax is often included. The overall cost of your leasing contract can include road tax. So, you might not need to worry about keeping on top of it.
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Maintenance packages. You might be able to add a maintenance package to your lease contract, which can cover things like service checks. So, depending on what your package includes, you might only be responsible for insurance and fuel!
Cons of leasing a car
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Risk of repossession. If you're unable to make the monthly payments, the car could be repossessed.
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Mileage limits. You'll have to agree to an annual mileage allowance. If you go over this, you might have to pay a fee.
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Early termination fees. If you decide that you want to end your lease contract before the agreed end date, you might have to pay a costly termination fee.
Can I lease a car if I have bad credit rating?
Yes, it's possible to lease a car with a bad credit rating. Although, your options might be more limited and you could face higher interest rates.
Leasing companies might also consider factors like your income and the size of your initial down payment. So, even if your credit score isn't perfect, you might still qualify for a lease.
But, just make sure that the lease payments, along with other costs like car insurance and fuel, are manageable for your budget.
Considerations when buying a car
If you're thinking about buying a car instead of leasing, you've got plenty of options to look into. Here's a breakdown to help you see what might be best for you:
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Pay in cash or credit. You can use cash or your credit card to immediately own a car.
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Get a car loan. If you'd prefer, you could consider getting a car loan to pay outright.
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Consider a hire purchase (HP) or personal contract purchase (PCP). A HP contract is where you rent a car with the plan to own it after the final payment. A PCP contract usually consists of a down payment, monthly payments and a larger final payment at the end to own the car.
Car insurance costs
When you buy a car outright, you're not just paying for the car itself. You'll need to think about additional costs like car insurance, maintenance, fuel and road tax.
If you're financing through a loan, like HP or PCP, make sure the monthly payments fit comfortably within your budget.
Buying a car might be a great option if you:
- Have a lump sum of money available to use.
- Want full ownership of the car in your name.
- Drive lots of miles each year.
Do I need a specialist insurance policy for a lease car?
If you'll be leasing a car for business, you might need to get business car insurance. It works the same as standard car insurance, but offers extra cover for work-related driving.
Whatever your purpose for driving, you'll need to make sure you have car insurance in place for the duration of the lease contract.
While some leasing companies might include insurance in the overall package, this isn't common. So, you'll likely need to arrange it separately.
Most leasing companies require comprehensive car insurance for leased vehicles. This is because third-party insurance only covers damages to the other party's vehicle, while comprehensive insurance can cover your leased car, too.
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