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Lease or buy a car? Contract Hire Guide.

So you want a new car but not sure if you should lease or buy a car. First let’s understand the main difference between a lease and a purchase. The clear difference between the two is with a lease its a long term rental which allows you to get a new vehicle more often without the burden of a traditional purchase.

Ask your self this

How many times have you been back to the dealership for a part exchange valuation and walked away happy? The amount of money you can lose in the short space of time of you owning the vehicle can be staggering. I’m not a betting man but if I was I would imagine it’s not many, if any at all... With the help of the internet we now have websites like Parkers or We Buy Any Car which can help you with a rough valuation of your vehicle. The problem with these services, the valuations are often inflated and don’t offer a true reflection of what you should expect. So we’re back to square one. I'm afraid cars just don't bring as much Joy at the end of ownership in comparison to the beginning.

Fortunately in the 21st century we have more than one way of getting a new car and not restricted to products like Hire Purchase or Personal Loans which can tell you of the loss you can expect when buying. Product I’m referring to, is Personal Contract Purchase or PCP for short. PCP presents you with an insight as to what you can expect your car will be worth at the end of your chosen term and mileage. That insight is called Guaranteed Future Value and is a calculated guess as to what your car will be worth at the end of your contract against the current market trends.

What is the down side?

Something to consider when you’re at the stage of deciding if you should lease or buy a car, is what your intention is at the end of the contract. People who consider themselves as New Car customers very rarely keep the car beyond the 4 year term. Most of the time you run out of your manufacturer's warranty at year 3 and need to begin putting your car through an MOT, which all adds up as an additional cost. On top of this, you’re also left to your own ability to negotiate a great deal with the dealership and walk away happy. The down side is we’re not all equipped to do this and often get mislead on the perception of what a great deal is. Which can sometimes make things worse if “Bob” at your local pub got the same car on better terms and rubs it in your face every time you go for a pint.

You also need to know this

If you were to go and get a Lease from the dealership similar situation can occur. You must go through the process of showing the best poker face you can and brace yourself for a gruesome negotiation. Unless you have a huge fleet of cars, its hard to agree any set terms as a consumer individual. This is why more customers choose to explore their options with a broker who has already done all the negotiation for you.

4 main ways to lease or buy a car

Personal or Business Contract Hire (PCH/BCH) – This product is commonly referred to as a lease. This is a type of long term rental which allows you the use of the vehicle over the agreed term and mileage. There is no option to buy at the end, so you do not need to shop around for the best price. You simply hand it back and start again. Leasing a vehicle usually allows you to benefit from lower monthly payments over a shorter term. All vehicles on Personal/Business Contract Hire come with Nationwide delivery and Road Fund License for the full term. Maintenance options can be included to provide hassle free driving, where tyres and servicing can be covered.

Hire Purchase (HP) – This is a product designed for customers who wish to keep their car for a longer period than 3 to 4 years. The principle of this product is to place a deposit and make regular monthly payments at the end of which the full value of the car has been paid off and it becomes yours.

Personal Contract Purchase (PCP) – This product is similar to Hire Purchase as you also place a deposit and make regular monthly repayments which eat into the finance owed against the car. The main difference is PCP is affected by the cars future value and that figure will need to be paid at the end if you were to own the car. You essentially pay for the depreciation of the car based on the agreed term and mileage with the option to buy at the end.

Personal Loan – Another option you have of purchasing your new car is via a personal loan. This product is commonly offered by your bank or building society. Often offers slightly better interest rates but no legal protection as its not secured against the car.

So, what should you do?

Now that you are equipped with the information you need, its finally time to decide if you should lease or buy a car. If you’re looking to take advantage of hassle free driving and keep the car for no longer than the 2 to 4 years then Lease is definitely the way for you. If on the other hand you like to keep your cars and have a long term plan, I would recommend you purchase your next vehicle. Now you're probably thinking, PCP or PCH? These two products work in a very similar man with one main difference. PCP has an option to buy at the end and Personal/Business Contract Hire does not. I will cover this topic in more detail on my next blog post. There are certain advantages with one over the other depending on the situation.

Is it a good Idea to lease a car?

Leasing a car has many advantages. Leasing allows you to have a brand new car on a shorter term, keeping it current. Lease is often based between 24 and 36 month. Meaning no warranty concerns or having to pay for MOT for the first 3 years. It is advisable to understand why leasing is beneficial. Leasing works of the total cost of ownership as oppose to the price you buy the car for. I.e. How much the car has cost you over the agreed term and mileage. More often than not, it works out a lot cheaper than buying.

If you choose to go for the 48 or 60 month option, make sure you understand how long the manufacturer warranty lasts. As majority are only eligible for the initial 3 years. If anything was to go wrong after that period, it would be down to you to fix it.

If you still insist on taking the 4 year option for the cheaper payment, it is worth while protecting your self with an extended warranty. MOT test will also need to be done for your 4 year, which can add an additional strain on the budget. With a lease, paying a little more a month to reduce your term may save you money in the future.

Can you lease a car and then buy it?

Most of the time, leasing means purchase at the end is not possible. In fact, this is the main difference between common dealership PCP and a Personal or Business lease contract. Leased car needs to be handed back to the finance company at the end and must be returned within the reasonable wear and tear guidelines. Car needs to be serviced according to manufacturer recommendations and within the mileage allowance.

If you want to know more on this topic, please read: PCP VS LEASE

There is exception to the rule. Certain finance companies under certain circumstances will let you buy the car at the end. It is down to you to negotiate that directly. The vehicle will often be researched against its current market value and a transaction is possible.

If your intention was to keep the vehicle at the end, leasing a vehicle can defeat its objective. Lease is designed to give you hassle free driving and keep you up to date with a new model car. If your full intention is to keep the car from the start, it may be worth while looking at other options.

How to choose your next lease car?

So you have gotten this far but you are still not sure if you should lease or buy a car. When considering your options It's important to understand how the lease payments are calculated and affects the monthly price. The short answer is, the cars with the greatest value retention tend to be better priced on leased term.

We have a topic based on this subject if you want to know more: How does leasing a car work?

Whenever the the customer asks what the best deal is on a particular type of car, there are several points worth looking at. Often the monthly payments dictate if a person goes for one car or another. After all, if the budget was not relevant, we would all be driving Bentley's or Rolls Royce. Down to your preference of course.

Budget has a huge impact on our decisions and rightly so. So, when discussing your budget, we do recommend you stick within the proximity of your budget. Reason why the "proximity" is because if you were to spend an extra £20 but get £5000 worth of extras, your budget may change as it has value for money factor. Lease does not take RRP into consideration but you as a customer should.

Lets do an example:

You are looking at two cars, both similar payment and similar deposit and you are not sure which one to go for. As lease does not discuss what price the vehicle is being registered for, you are blind to that information. However, there is nothing stopping you asking how much the vehicles would be to buy new. You can find this information relatively easy online by typing a particular vehicle into google search. It will either give you the information or provide you with a link that does.

Back to our decision on which car to go for.

You look up online and make a discovery. One of the vehicles is £5000 cheaper to buy than the other. In the true fashion of value for money, go for the more expensive RRP. It makes complete sense if the monthly payments and terms are similar. This is the beauty of leasing, a more expensive vehicle to buy is not necessarily more expensive to lease.

We have included links to some of our Special offers and no deposit deals for your browsing: Car Leasing No Deposit and Car Leasing Special Offers

There is one more thing I would like to discuss

As you are probably aware you have found this article on our website Alexander Stone and we are a Vehicle Leasing Broker. We specialise in new cars but also provide used car advice depending on your personal circumstances to help you choose if you should lease or buy a car. There are many variables and making such a huge decision on your own can be over whelming. The conflicting information you may receive from situation to situation can also sway your decision in the wrong place.

Alexander Stone offers free Nationwide car leasing delivery with all of our vehicles on UK mainland and can offer a Skype conversation if you would like to deal with the consultant on a face to face basis. We do whatever we can to make a personal experience of all of our clients.

Why you should use Alexander Stone for your Contract Hire needs

Remember earlier in this article I discussed the gruesome negotiation you will likely have to go through in order to secure yourself a great deal when shopping for a new car. Well, with us that doesn’t need to happen. We have already done that for you! Our selected partners have agreed terms which takes the negotiation out of your hands and into ours. So if you’re looking to lease or buy a car, you can be rest assured you will get the best deal available to us. If you are ever in need of any information explained by an expert or simply looking after some general advice you can email Alexander Stone Ltd on info@alexander-stone.co.uk or alternatively give us a call on 0191 691 1351.

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Posted on 8th February 2018 at 11:59 AM

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