As spending habits change, more and more drivers in the UK are now turning to leasing a car, rather than buying them outright. Instead of saving and buying a vehicle, new or used, an overwhelming percentage of people are now opting for monthly payments over a period of time. Some are choosing to buy the car at the end of the lease and others are simply handing it back, and getting a brand new one on a fresh deal, almost straight away. But why this shift? Is it because it’s cheaper? As leasing specialists, we’ve rounded up the top 8 reasons why we think drivers, old and new, are considering leasing over buying, and why it can be more financially viable.
No large amounts to pay upfront – It may sound obvious but to buy a car outright, you will need a large lump sum of savings, especially if you are looking at new cars. You purchase the car in full, meaning that you take full ownership from that point. If you have a large amount of money or savings, and can afford the brand new car you want, then it’s a great option if you’re happy to then keep that car for many years and don’t mind about the depreciation of value as soon as you drive it out of the forecourt. Even if you’re looking for a used car, for a smaller amount of money upfront, this also comes with risks such as mechanical issues, and therefore ongoing maintenance costs. Either option will see you forking out an initial lump sum which, as trends are showing, drivers are steering away from more and more.
You get to drive a car you couldn’t afford to buy – Whether people have the money to buy a brand new car upfront or not, it seems they are still opting for leasing over buying. For those that do have the funds but are still leasing, it’s presumably because they don’t want to spend all their hard earned money on one asset like a car. They’re essentially freeing their cash up for other purposes and purchases. For those that can’t afford the new car, it’s a huge bonus, and we think the main reason why leasing has become so popular. They get to drive the car of their dreams, the car they want to be seen in, a car that is full of the latest features, that’s safe and won’t break down, even though they could never afford to buy it.
Save money on road tax – The way we build and design cars are getting smarter and so much more environmentally friendly. With the introduction of hybrid and electric cars on a huge increase, we are seeing a vast change in car tax prices, as it’s dependent on how many bad CO2 emissions your car expels. Working on a tax band system, the more CO2 your car gives off, the higher the car tax is. The less emissions, the lower the cost. Cars are now being built to give off little or no emissions at all, meaning that many new cars come road tax exempt, saving huge amounts of money per year compared to older, second-hand cars. It’s definitely something to take into consideration.
You don’t have to deal with car value depreciation - This is probably the single biggest factor of why people are starting to lean towards leasing rather than buying. As soon as a brand new car leaves the forecourt, its worthless, and its value will depreciate every year. According to the AA, by the end of the first year a car will have lost around 40% of its value. By year three, the average car will have lost around 60% of its value. These numbers obviously differ massively depending on what car, how many miles you drive and how fuel efficient the car is. This depreciation also slows after the first few years, but again it’s definitely a factor to study when buying. With leasing you don’t have to worry about this, and actually leasing payments also usually take this car value depreciation into consideration.
Cash flow – Many lease deals these days often come as a package which can include road tax, roadside assistance, warranty and even insurance. All neatly bundled into one monthly payment. Not only is this a huge bonus for people who don’t want all these payments coming out separately, and at different times, but it is often cheaper as leasing companies will strive to get you the lowest monthly price for their lease prices to be competitive. Although it may not save you massive amounts of money, it definitely helps with cash flow and how people can manage their finances.
Improve your Credit Score – When leasing any car, it’s mandatory to pass a credit check to secure your agreement. It doesn’t necessarily mean that you can’t lease a car with bad credit, but you might be able to get a better interest rate with a higher credit score. Leasing a car can be a great way to improve your credit score. If you are able to demonstrate that you can handle and keep up with your lease payments responsibly, this should be reflected in your credit score over time. It goes the other way too, and should be noted that if lease payments are missed, this can have a detrimental effect to your score too, just like many other finance plans.
How you drive – It may sound insignificant but your driving habits and what you actually use your car for can also determine whether it’s going to be cheaper to lease. If you only use your car sporadically and don’t drive a lot; you simply commute to work, take the kiddies to school and drive locally, then why fork out a huge sum to buy a car that’s going to depreciate in value over time. Many people have a couple of cars in their household, and often opt for leasing a small, cheap to lease and cheap to run second car that costs way less than buying another outright.
Maintenance costs – The last, and probably most talked about when drivers are comparing buying and leasing financials, car maintenance. With a lease car, they are typically brand new or only a few years old and most will come with warranty. This means if anything goes wrong at all, it can be sorted quickly and easily at a little or no cost. The biggest difference of buying a car is that, as soon as you own it, everything is your responsibility. You are stuck with the vehicle for an undetermined amount of time, until you decide to sell it. Overall those years the car is going to need attention at some point and unless you are a mechanic (lucky if so!) you’re going to have to shell out for all the repairs and maintenance it needs. This is especially true and risky if it’s a second hand, older car. With leasing, this isn’t something you will have to worry about. Lease terms are ordinarily around 3/4 years, and it’s unlikely that anything will go wrong with a brand new car within that time. If it does, it is most probably covered, depending on your lease agreement. This will save you a significant amount of money over the years if you continue to lease new cars, as you are eradicating the element of fixing and maintaining a car which, as many of us know, is an expensive obligation.
Although we might be biased towards leasing, we aren’t saying that leasing is definitely cheaper. We feel there are so many factors that it depends on, such as timeframe, make/model/price of the car and also your personal circumstances. Long term it may be cheaper to buy, but then you also have to take into consideration the cars value and the ongoing upkeep and maintenance costs which, down the line, are impossible to calculate. Shorter term, over a few years, we do feel that leasing is the cheaper and way more efficient option. Many will lease whilst they save for a car because they want to own one, but many will also just continue to lease as they like to have new cars. All in all, it’s a personal and individual choice.