When Is Car Leasing Better Than Buying?
Choosing whether to lease a car or to buy one comes down to a lot more than simply cost and although car leasing has grown significantly in popularity over the last few years, there are still many things to consider.
In this article we’ll cover the pros and cons of leasing vs buying a car, to help you decide which is best for your circumstances.
A quick note on PCH and PCP
In this article, we will be referring to car leasing generally, which includes both Personal Contract Hire (PCH), and Personal Contract Purchase (PCP). Although both PCH and PCP give you the ability to pay a low monthly payment for your vehicle they are actually very different ways of leasing your car.
The main difference between PCP and PCH is that with PCP you have the option to buy and own your car at the end of the agreement, whereas with PCH, the car is always returned at the end of the lease agreement. We recommend reading our in-depth guide on the differences between PCP and PCH vehicle leasing if you are still unsure of the definitions.
For some people having to return their vehicle at the end of the agreement would be a negative, but for others, this is seen as a positive as it gives them access to a new vehicle.
The pros and cons of car leasing
Leasing is essentially long-term car rental. The vehicle remains the property of the leasing company and at the end of your lease agreement, you must return it (unless you are in a PCP agreement in which case you will pay a final payment and will end up owning the car).
For the duration of the lease agreement, you will pay fixed monthly payments to the lease company for use of the vehicle and must not exceed the parameters of your contract which may include things such as mileage restrictions.
The pros of car leasing vs buying a car
Car leasing has many plus points and works well for a number of drivers, some of the key benefits of car leasing include:
- Access to new vehicles
Everyone wants to drive around in a new car, but not many of us can afford to take the depreciation hit on a new vehicle every couple of years. Leasing a car in a PCH agreement gives you access to new models every year or so, and it’s the leasing company that takes the depreciation hit.
- More affordable
Buying a new car can be very costly, especially if you are looking to purchase a newer model. Leasing a vehicle is a much more affordable way to ‘own’ a car, as lease payments are generally a lot lower than monthly loan repayments on a new car.
- Lower maintenance expenses
When taking out a car lease, most of the maintenance costs are covered under the agreement, significantly reducing the chances of you experiencing unforeseen repairs.
- No resale worries
When your car lease agreement ends, you simply return the vehicle to the lease company and they handle the re-sale of the vehicle. You don’t need to worry about taking a depreciation hit or advertising the vehicle to potential buyers.
- Better for businesses
If you use your lease car for business purposes then it could save you money, this is because the IRS allows you to deduct both depreciation and finance costs from your lease payment.
Cons of car leasing vs buying a car
Of course, car-leasing is not without its negative points, which include:
- Limited annual mileage
Most car lease agreements come with a pre-agreed maximum annual mileage, which, if exceeded, can cost you. It’s important to understand your average annual mileage and to keep track of when you are nearing your limits. Some drivers dislike having these restrictions on their vehicle usage.
- Handing the vehicle back
For those on PCH plans you will need to hand back your vehicle at the end of the lease agreement. For some people, this is negative as they have paid a lot of money towards an asset that they will never own. For others, this is not seen as negative as they consider it paying for access to newer vehicles that they could not afford if they were buying. You will need to decide if the end goal of your finance agreement is to own your car or not.
- Financial commitment
For some people, the prospect of being tied into a financial commitment for anywhere between 12-48 months can be daunting, but unless they are planning to buy their new car outright, they will still be in a finance agreement with their new car.
- Less freedom
Because leased vehicles remain the property of the lease company you will be discouraged from making any customisations or alterations to the car while in your contract. If you do make any customisations, these may have to be reversed before you return the car to the lease company. If you are looking to make modifications to your vehicle then leasing is often not the best option.
- High initial payments
Finally, some car lease agreements require a higher first payment before you begin paying your lower monthly repayments, this can be equivalent to as much as 12 monthly payments and some people may not be able to afford it. That being said, the initial payment on a car lease agreement is still often far less than the deposit required on the purchase of a new car.
So is car leasing better than buying? The answer depends on what you want from your car and your own personal circumstances. One thing is for sure, leasing is becoming an increasingly popular way to run a new car, and certainly makes driving a new vehicle far more accessible. To understand if car leasing is right for you, take a look closer look at the pros and cons listed above and note down those that apply to you and remember that you have the option to take out a PCH or PCP plan, depending on whether owning your vehicle at the end of the agreement is a key consideration.