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Lease or Buy: Decoding the Road Map to Affordable Auto Ownership

kokou adzo

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Lease or buy a car? What to do when times are tough? Read more about car leasing to find out about affordable driving.

In the old days before digitalisation (2007), the goal was to own a car and a flat before you were 30; roll on 16 years, and the chances of millennials or GenZ doing either of those things before they are 40/45 is unlikely.

In the last few years, the cost of living has made ownership of anything prohibitive – if you own a bike and manage to keep it away from thieves, you’re doing well. So you could say we are in the ‘rent era’, meaning if you can’t buy a car or an apartment, you rent it. Renting anything has its pros and cons, and when it comes to renting, the cost has increased above the rate of inflation year on year, making life difficult.

If that wasn’t bad enough, the rollout of the ULEZ in London and other major cities in the UK has changed how we drive. ULEZ is no longer confined to central London. If you live and drive within the M25, you’re affected, and you should think about contacting car leasing specialists.

Understandably, we are all looking for more affordable options, and it’s not looking like car ownership is a viable option, let alone an affordable one. New cars are costly, and most people who purchase new cars don’t buy them outright. They use a personal contract purchase, another name for a long-term rental.

Buying a car this way means you own the car (as long as you keep up the payments) and have something to sell at the end, but the interest rate on the loan can be incredibly high, and you might be paying over the odds. The better option might be leasing, and this is why…

What is car leasing, and how does it work?

A lease deal is also a long-term rental. Personal contract hire is the primary way of leasing a car. You pay your deposit, followed by a series of monthly rental payments for an agreed amount of time, with an option to extend the rental or upgrade at the end of the agreed period.

The period is typically two to five years, and you can alter the size of your deposit to suit your lifestyle—a more considerable downpayment results in lower monthly payments. At the end of the personal contract hire period, you return the car with no contractual option to purchase the vehicle. Some leasing firms may agree to sell the car, especially if you have had it for five years or more.

During the lease period, you don’t own the car – it remains the property of the leasing company, and just like a personal contract purchase, if you do not keep up the payments, the car will be repossessed.

What are the differences between car leasing and car purchase?

There are significant differences between buying and leasing a car; it’s effectively the difference between buying a washing machine and renting one, all but on a much larger scale.

If you buy a washing machine, you can use finance packages like hire purchase agreements or a straightforward loan with an interest payment attached. You get the loan, own the washing machine and pay to fix it when it goes wrong (and it will).

The same analogy applies to a car; you agree to the finance package, then own the car (as long as you continue to make the payments), and you pay to have it fixed when it goes wrong. Except, unlike a washing machine, which is relatively inexpensive in the first place, a car is an investment and an investment that can lose money over time.

Leasing a car is different to buying a car

Leasing differs in that you are renting the car over a fixed period and with specific terms (mainly related to the mileage you can cover and its overall condition at the end). Here’s the excellent news…

Leasing means you don’t have to worry about depreciation ( a new car depreciates the minute you drive it away), and if you choose an all-inclusive lease package, the cost of the service and MOT (if you keep the car over three years) is covered. It’s not your car, so you drive it and let the lease company worry about everything else.

Pros and cons of car leasing – pros of car leasing

  • The monthly payments are usually lower than financing a purchase.
  • Short-term agreements are available, making it possible to upgrade as often as you like.
  • If you look after the car, there are no hefty fees at the end of the agreement.
  • There are minimal or no maintenance costs depending on your rental or leasing package.

Pros and cons of leasing a car – cons of car leasing

  • You don’t own the car, but in some cases, you can buy it down the line.
  • Leasing agreements have strict mileage limits you need to stick to unless you upgrade your package.
  • You cannot get out of your lease agreement without a financial penalty.
  • The written terms and conditions are long and must be understood to best benefit the driver.

It depends on how you look at car leasing to understand the benefits. If you’re looking for freedom to upgrade, minimal responsibilities, and your lifestyle is subject to change, then car leasing might be the answer you’re looking for. Let’s look at the money element of car leasing.

Is it cheaper to lease or buy a car?

The question posed is not easy to answer as there are many variables. While a personal contract purchase will give you a sense of ownership, you will feel like you own the car and have an asset. You don’t own the car until you make the final balloon payment. So, if you’re not bothered about a sense of ownership, then leasing is cheaper than owning.

Leasing a car, like renting a washing machine, means you are not paying anything towards ownership of the machine while you’re using it, and you don’t worry about extra costs as long as you keep away from washing the entire rugby team’s kit after every game. Financing a car or buying it with a loan is just like taking a mortgage. You need a large deposit and may pay more each month (with the possibility the interest rates might change), but you’ll own the car, or at least you will at the end of the finance term.

Though, as with a house, if you own a car, you’re responsible for keeping it legal and roadworthy, there’s no one in the background to provide support if you change your mind.

So, you have understood the car, house, and washing machine analogy. In that case, you will probably agree that leasing is the way forward, especially in uncertain times, and that’s one thing we can agree on – times are uncertain.

Kokou Adzo is the editor and author of Startup.info. He is passionate about business and tech, and brings you the latest Startup news and information. He graduated from university of Siena (Italy) and Rennes (France) in Communications and Political Science with a Master's Degree. He manages the editorial operations at Startup.info.

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