Buying vs leasing

Compare buying versus leasing a car and decide how to buy your next vehicle

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Buying or leasing a car is a big decision, and there’s no one right choice for everyone

Buying a car

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Buying a car gives you ownership, but unless you have a lot of cash lying around you’re looking at significant interest on the loan option you take out. Leasing on the other hand gives you flexibility and comes with lower costs – but you’ll never have a car to truly call your own.

This guide explains all you need to know about leasing vs buying a car.

What’s the difference between leasing and buying a car?

If you have a set budget per month and want the reliability of a brand-new car, leasing might be right for you. As long as you can afford the monthly payments, it makes your vehicle expenses predictable. You won’t have to worry about unexpected repairs either, because lease cars come with a manufacturer’s warranty.

Remember to choose contract terms which reflect how you will use a lease car before settling on a price with a leasing company. The cost of the monthly payments will be dictated by the initial rental amount, annual mileage limit and contract length. So, it’s important that you can afford to pay the whole lease cost, stick to your agreed yearly miles and keep the car in good condition. Otherwise, you could end up paying more for late payments, excess mileage charges or damage charges.

The differences between buying and leasing

Buying a car often requires a larger upfront payment than leasing, even if you plan to buy a vehicle through PCP (personal contract purchase) or HP (hire purchase) finance. The monthly payments also tend to be more expensive for these finance methods because they go towards the value of the car, rather than its depreciation over the course of your contract, like with leasing. Once you own the car, you’ll then have to factor in depreciation costs and have enough put aside for any unexpected repairs if the car is out of warranty.

What are the benefits of leasing a car?

Low upfront payment: Most leasing companies allow you to pay as little as one month’s worth of the monthly rental cost up front for the car. However, you can pay more if you want to lower the price of the remaining monthly payments

Fixed monthly payments: It’s much easier to predict how much you’re going to spend on your car when you lease as payments are fixed. As long as you stick to the agreed annual mileage and keep the car in good condition, you won’t be charged any extra at the end

A new car every few years: Upgrading to the latest model every few years is expensive. With leasing, you can get behind the wheel of a new model the same day you hand back the keys of your old lease car

No hassles of ownership: One of the biggest bugbears of owning a car is that it’s a depreciating asset which becomes more expensive to repair the longer you have it. When you lease a car, the finance provider owns the vehicle and takes responsibility for ownership costs once your agreement is up

Value for money: Car leasing includes perks within the cost, such as road tax for the duration of your contract, free delivery to your home and a full manufacturer’s warranty

What are the disadvantages of leasing a car?

Mileage restrictions: At the beginning of a lease agreement you’ll need to specify how many miles per year you intend to drive. Your total mileage is calculated at the end of your deal when the car is collected, and you’ll be charged a rate per mile for any additional miles over your original limit. A typical deal will let you specify between 8,000 miles and 30,000 miles per year, which is enough for most drivers. If you will drive more or less than this, leasing probably isn’t the best option for you

Admin fees: Although not every leasing broker will charge admin fees for a lease agreement, many do. This one-off payment costs around £200 for the broker to process the paperwork for a deal on your behalf

Damage charges: It’s your responsibility to keep the car in good condition throughout your agreement. Any damage considered beyond ‘fair wear and tear’ will result in a charge. Don’t worry too much about being penalised unfairly. As long as you’ve stuck to the manufacturer’s service schedule and the car’s condition reflects fair use for the time you’ve had it, you won’t be charged anything extra

Bad credit makes leasing difficult: You’ll need to pass a credit check to prove you can make the monthly payments before you’re approved. If you don’t have a good credit score with one of the main credit reference agencies (Equifax, Experian and TransUnion) you’ll find approval hard to come by. The initial rental and monthly payments will be more expensive due to interest charges

What are the benefits of buying a car?

The car is yours: When you buy a car, you own it and only need to fund its running costs. You can make modifications to it too – modifications to a lease car must be reversible

You can sell the car: Owning a car means that you can sell it at any point. If you retain is in excellent condition, find the right buyer and evaluate the car’s cost accurately, you can recoup a lot of the money you originally spent on it

No mileage restrictions: Unlike when you lease a car, you won’t be limited by an annual mileage cap for using your own vehicle. You’re free to drive as many miles you wish, without being charged any extra

What are disadvantages of buying a car?

Depreciation costs: The minute you start driving a car, it begins to lose its value. This means you’ll struggle to recoup most of what you paid for it in the first place. Classic cars are an exception, as these models tend to hold their value a lot better than standard vehicles

More problems with age: Cars are a depreciating asset which often experience more problems the older they get. When you buy a car, you’ll have to pay for any unexpected repair work it needs, whether that’s directly through a garage or if you’ve paid for a manufacturer’s warranty

Large upfront cost: Even if you’re buying through a form of finance or loan, you’ll often need a larger upfront payment than if you were to lease. This is because the payment goes towards the full value of the car, whereas with leasing the initial rental goes against the vehicle’s total depreciation based on your contract term

You’ll have to pay road tax: When you buy a car it’ll be your responsibility to pay tax on it each year. The cost of road tax will vary depending on the CO2 emissions of your model, with cars that emit more CO2 costing more to tax

Selling a car can be a hassle: Owning a car means that at some point you’ll probably need to sell it. Regardless of the reason behind selling your car, this process takes time and effort

How do I decide between leasing or buying?

If you’re struggling to decide whether to buy or lease a car, here are few things you should consider.

  • Work with your budget: Monthly payments for a lease car tend to be cheaper than other forms of finance which let you own a car. With that being said, you need to make sure you can afford to pay for a lease vehicle for the entire agreement. If you have money saved up for a large deposit and don’t want to keep paying to use a car, buying might be the right option for you
  • Ownership preference: if you know that you want to own your next car, leasing is not an option for you. But if you’re not fussed or want to avoid the hassles of ownership, you should compare the leasing and buying costs for your preferred model in order to get the best value for money
  • Consider maintenance responsibilities: Repair costs can be unexpected and costly if you own a car. However, with leasing you’ll be covered for maintenance work throughout your agreement on issues which aren’t due to driver error
  • Check your credit score: A credit check for a lease agreement won’t be entirely dependent on a good credit score, but it will mean you get the best rates possible from the finance provider. It’s a good idea to check your credit score before applying for a lease deal to help you decide if you can afford the monthly rentals or whether buying a car is a better option
  • Consider buying used: It might be more sensible to consider buying a used car if you don’t think you can keep up with monthly payments. Just remember to check the history of a used car online before buying it, and give it a comprehensive check before buying

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