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Car Loan or Car Lease? Here’s the ONLY answer to that question!

Car Loan or Car Lease? Here’s the ONLY answer to that question!

10 December 2020 Concept Car

Buying a car is rarely a pleasurable experience. It’s expensive, tiresome and time-intensive. Rejection is a realistic possibility. And even if you do get accepted, the danger of a default looms high.

Which is why so many people in the UK are opting for a lease.

Leasing is no longer a niche product. Millions have already opted for a lease and despite the difficulties experienced as a result of the pandemic, the industry still managed to grow by almost 4% between 2015-2020.

In many respects, PCPs are a modern twist on leasing. If you add those in with the statistics, leasing and its variations are the most popular car finance type in the UK!

The advantages of leasing are instantly apparent: It is extremely flexible, includes many services, allows you to drive a truly great car and to replace it with a new model every three years and still manages to be affordable.

So why do we still insist there is a better option out there?

Let’s find out in this in-depth look at vehicle leasing.

What is car leasing?

Yes, we know it sounds like a daft question. But can you really put the finger down on what defines leasing?

Here’s the thing: Leasing has been around forever, simply because the cost of owning a car has always been very high. But it has usually remained a rarity, simply because most people prefer to own a car outright.

Leasing means renting a car for a pre-determined amount of time, usually three years. The cost of leasing is determined by the so-called money factor, which sounds awfully complicated in theory, but is really just a more fancy version of an APR.

After the lease expires, you return the car to the dealer. You can then walk away and opt for a different alternative. Or you can renew the contract for a different car.

With leasing, you are never the owner of the automobile you’re driving. This, of course, begs the question:

Do you really need to be the owner?

This is the big question in car finance right now. Up until recently, owning your own car was not even a question. It was so obvious it wasn’t even worth discussing.

Especially in the 80s, leasing was reserved for the business elite. The closest thing the average person would come to it were fleet cars: Mostly rather bland but reliable models sponsored by big companies for their employees.

The time have sure changed.

Owning anything at all has come under scrutiny. Do you really need to possess all of those CDs and LPs or would you rather stream them? Do you need to buy a copy of Microsoft Office or can you do with renting it for a monthly fee?

You can ask yourself the same question when it comes to cars. Of course, a vehicle of your own has its benefits (we’ll come to those towards the end of the article). But if you think about it, it also has its downsides.

So you owe it to yourself to at least think about alternatives.

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Leasing versus PCP - Concept Car Credit

Leasing versus PCP

As we’ve mentioned before, leasing and PCPs are very much alike in many respects.

  • PCPs and leasing both run for about three years.
  • In both cases, you pay monthly instalments as you would with a car loan. But because these are not based on the complete purchasing price, they both tend to be considerably lower than your EMI (equated monthly instalments) for a personal loan would be.
  • After the contract runs out, most people return the car to the dealer and sign a new one.

There is, however, one decisive difference: With a PCP, you can actually buy the car at the end of the contract period. All you have to do is make one final transfer, the so-called balloon payment. After that, the car now belongs to you.

There are a few more differences, which we’ll go through over the next few parts of the article. All you need to remember is this: With a PCP, you can potentially become the owner of the car. In leasing, you can not. (At least not typically.)

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Flexibility is key.

The biggest benefit of a leasing agreement is its high degree of flexibility. Because you never actually own the car, you can simply decide to end the deal after three years and you’re done.

This is exactly the way a PCP works and one of the key benefits of these plans. However, with a PCP, the way these deals are set up is that you often do find yourself almost forced to go for a second term. Ending a leasing contract after the designated contractual term is easy in comparison.

In fact, unless you renew it, it will simply end by itself.

It is not quite that easy to prematurely terminate a leasing contract. However, and we’ll get into that in a second.

Afford a truly great car – every few years!

Many people can’t believe it when they first hear about leasing. The kinds of cars you get to drive with these contracts is truly spectacular.

Because monthly instalments are so much lower with leasing compared to a regular car finance deal, you can go for a better model or one of the top brands and still be able to afford the monthly payments.

From a psychological point of view, this is a significant benefit: Instead of driving an unseemly lemon to work each day, you can now get there with a brilliant looking new one. And imagine how much more fun that long drive to your holiday destination will be!

As an additional bonus, leasing all but insures you always get to drive the latest models with the most up to date safety technology. Especially with the advances that manufacturers have made in this department of recently, this is something you shouldn’t underestimate.

Many people get fed up with their car around the five year mark. If you keep leasing automobiles, you can make absolutely sure you never get bored with your car, ever.

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Great service - Concept Car CreditGreat service

When you lease a car, you instantly get access to what looks like a VIP package.

Most leasing contracts include regular check-ups. They also frequently include free repairs. And best of all, if your car should break down or get into an accident you didn’t cause, you are frequently entitled to a free replacement.

All of these perks are a legacy of the business days of leasing, when companies relied on them to guarantee that their employees would always have access to a vehicle.

Today, they sound like a dream come true and that little bit of luxury we all deserve but can only seldom afford.

Affordable monthly payments

Realistically speaking, this is the real reason why leasing has gained so much momentum of lately.

A leasing contract is based on a simple proposition: The dealer grants you usage rights to the car for a limited amount of time. After you return the car, the dealer can then sell the car on and ideally make a healthy profit.

Because you will never own the car, your monthly instalments are not based on the total cost of the car. Instead, they are based mainly on its depreciation. As a result, your monthly burden ends up being a lot lower.

How does leasing compare to PCPs? In general, PCP tends to be more expensive than leasing, simply because it is even more flexible: You can, after all, buy the car at the end of the contract period.

But the difference isn’t huge. So if affordable monthly payments are your goal, both are interesting options for you.

Not all that glitters is gold. - Concept Car CreditNot all that glitters is gold.

After hearing about all of these benefits, you may wonder: Why doesn’t everyone just lease their car?

The simple reason is that leasing isn’t perfect by any means.

Here are the main disadvantages of leasing:

  • Unless you intend to replace your car every three years, buying is still a lot cheaper than leasing. This is because the leasing fee is based on depreciation and depreciation is highest in the first three years of a car’s lifecycle.
  • Terminating a leasing contract early is almost impossible. Or, more precisely, it is so expensive that you would never want to do this. This need not be an issue. But if you can no longer afford your instalments, there is no easy way out.
  • More to the point, if you urgently need cash at any given moment, you can always sell your car if you own it. But with leasing, you’re stuck.
  • You remember what we said about the joy of driving to your holiday destination with your spanking new lease car? Sure, it sounds great, but do think twice before actually doing it: Each leasing contract has a clearly specified mileage limit. As soon as you exceed it, you will need to pay a penalty.
  • The same goes for the condition you return the car in. Because the dealer wants to sell the car on again, she will expect the vehicle back in pristine condition. Any blemishes or damages will cost you.
  • You can not change the car in any way. Sure, you could replace those uncomfortable seats with expensive new ones. But in the end, you will have to pay for that pleasure.

Driving instalment-free

There’s one vital benefit of buying a car of your own that is all too often forgotten.

It’s really like owning your own house. At a certain point, you’ve made all your mortgage payments and you can start living mortgage-free.

Likewise, with your own car, you can reach the point of driving instalment-free.

This is the point we should all aspire to. After all, beyond that point looms true freedom and financial support. Just imagine no longer having to make those nasty loan payments at the end of each month!

With leasing, however, you will never drive instalment-free. You will always have to pay up – regardless of whether you are doing well financially at that moment or not.

And this is a significant problem, especially if you are tight on cash.

Summary: Why we think leasing is not a great idea.

Sure, leasing is a good concept in theory. It gives you that extra flexibility we all love so much in the 21st century. It reduces your monthly payload. And, as an additional bonus, it gives you access to the latest safety technology.

At the same time, it is expensive in the long run, prevents you from ever driving instalment-free, creates plenty of additional costs and means you can never adjust the car to be exactly the way you want it.

Which is why we still believe that buying a used car is your best possible option. It is by far your cheapest option, offers you a vast choice of models (some of them pretty old, others remarkably recent), allows you to change the car far more easily and offers the hope of reaching the point of instalment-free driving.

At Concept Car Credit, we specialise in offering these benefits to those with bad credit and limited financial means. Talk to us now if you want to get behind the wheel again.

10 December 2020 Concept Car