Cars are an everyday item that most of us cannot do without. We need our car for the daily commute, to ferry the kids around, and to do the weekly shop, but whereas the most common way of acquiring a gas-guzzler is to buy it, leasing is one alternative you might wish to consider.
How does leasing work?
When you buy a car, once the finance or hire purchase agreement has been paid off, you own the car outright, so when the time comes to sell the car on, you can pocket the proceeds. Leasing a car is a completely different scenario. You pay a monthly fee to use the vehicle, but the monthly charge is usually lower because you are only paying for a percentage of the car rather than buying the whole vehicle.
What the pros of leasing a car?
In an ideal world, driving around in a brand new car every year would be the norm, but unless money is no object, you are probably stuck with your old family estate until bits start falling off with monotonous regularity. Leasing a car, on the other hand, allows you to drive a new car (and probably a better model than you could afford to buy) all of the time. You are also free from the hassle of fixing the many annoying problems that arise with older vehicles since new cars are generally much more reliable and are covered by the manufacturer’s warranty.
Leasing a car is very tax efficient for small business owners and self employed people – all of the expenses associated with a car lease agreement can be written off as a legitimate business expense. Leasing a car is also better for cash flow and you won’t lose money on depreciation, plus you can claim back some of the VAT on the finance payments and maintenance agreement.
What are the cons of leasing a car?
One of the biggest downsides of leasing as opposed to buying a car it is that you are tied into a contract for a specified term. This is fine if you know what your monthly expenditure is likely to be, but if anything goes awry and you find yourself broke, you won’t be able to sell the car to free up some cash. A leasing agreement also requires you to stick to an agreed upon mileage and if you end up doing more miles, you will probably have to pay a hefty penalty.
In summary, the decision of whether to lease or buy a new car is going to hinge on a number of different factors, but if you want the luxury of driving around in a brand new car every year and you don’t mind paying indefinitely for the privilege, leasing is probably for you. But if you prefer getting your money’s worth out of a car, or you can’t be sure how many miles you will be doing, buying is probably a better option.
This article was written by Paul O’Hara, car enthusiast and blogger from London, UK.