Getting a car is an exciting prospect but you may not be sure whether to lease a car or buy it. The following aims to shed some light on the differences between the two options, which should help you in deciding whether you want to follow the car and leasing route or the purchasing route.
If you take out a loan from a bank in order to buy a car, you will have to pay the loan back in monthly instalments plus interest. As your monthly payments progress, the amount you owe the bank becomes progressively smaller, and in turn the interest you pay becomes less because the amount you're paying interest on is reducing. For instance you may take out a £10,000 loan to purchase the car and after several months you have paid back £3,000 plus the interest. Now you are not paying interest on £10,000 but instead on £7,000.
The payments on a lease car are different to those for a car purchase because you are paying to use the car, not buy it. Included as part of using the car are the depreciation cost (how much the car decreases in value from its purchase price whilst you're using it), as well as excessive wear and tear and mileage during your lease period. When you lease a car from a vehicle leasing company, the company has already bought the car before leasing it to you, which means you pay interest on the car's purchase price (for instance a purchase price of £10,000). Note though that because you are paying to use the vehicle during car leasing instead of making purchase loan repayments, the £10,000 amount that you are paying interest on never gets smaller, hence the interest you pay will not reduce like it would if you had bought the car.
A great advantage with a car lease is that when your lease agreement expires you simply hand the vehicle back to the car leasing company and it is their job to sell it. During your lease period the monthly payments are probably going to be higher than the monthly payments to pay back a purchase loan but the lease has the advantage that when it expires you can choose to lease another new car, so you can drive new cars every few years. Maintenance costs throughout the lease period should also be relatively low since the lease car will be new at the start of the lease.
Almost inevitably if you are going to sell a car that you bought a few years previously, you will make a loss on the sale compared to what you paid for the car because it will have depreciated in value during the time you owned it. You will also probably have higher maintenance costs the older your car becomes. A purchased car however is owned by you and you are free to make any modifications you want to it, which you will not be able to do with a lease car.
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Learn the difference between purchasing a car and car and leasing before making a choice. Go to Leasing Options for great deals on your car leases
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