Lease or Buy Your Next Car?

February 13, 2012

Once you’ve identified your next car, you’ll need to think carefully about how you finance it, as the wrong decision could cost you hundreds over the finance term’s lifetime.

Your main options, if you don’t have sufficient savings to buy outright or pay off the balance after a part-exchange on your existing vehicle, is to look at personal loans or think about leasing. There are pros and cons to each and suitability will vary between individuals.

Car Loans

Loans are still the most common way of financing a car purchase and there are many of them on the market. Ideally, you’ll have some savings with which to put a deposit on the car down and then borrow the balance. Don’t simply go for the finance offered at the dealership, as it can often have an interest rate as high as a credit cards. Go online instead and use a price comparison site to search the full range of loans that suit your requirements and circumstances. These might be provided by banks or online lenders and many can be applied for online and have the money in your account very quickly.

Car Leasing

With leasing, you don’t buy the vehicle, you merely hire it. The monthly rental charge generally equates to the depreciation that occurs to the car over that period, plus interest and other costs. This means that the car make and model has a strong bearing on the monthly charge. Those which have the steepest depreciation when new or nearly new will cost more. At the end of the leasing period, you can either buy the car or take up a new leasing deal. These tend to be good for buyers who want a newer car without the hassle of maintenance costs. However, there are high charges if you go over your agreed mileage limit and you’ll need to take out full comprehensive insurance, rather than just a basic third-party policy.

Which Option to Choose?

To make this decision, compare the cost of buying the car versus leasing it. You can either do this manually, or there are calculators available online to help you work out your costs.

If you buy a car, you’ll pay for insurance through sites like MoneySupermarket.com, servicing and maintenance, road tax, breakdown cover, depreciation, the cost of servicing the loan and other charges and costs. With leasing, you’ll pay the monthly rental payment and car insurance.

When you compare the two with real figures, it should be easy to see which will leave you better off. Leasing sometimes works out well as it allows people to acquire better cars and there’s no problem about selling them at the end of the lease period. If you have a good credit rating, you can often get a range of quotes and then play leasing companies against each other to get the best deal.

With loans, however, you have the option of buying a car that you’ll own outright eventually and there are some competitive deals on loans available in the market at the moment.