When is leasing a car the best option?

Are vehicles going electric? What’s going to happen with diesel cars? Is your city going to become a congestion zone? What will be the impact if rail and bus networks move back into public ownership?

The future of our roads is currently unclear, which makes it understandable to question what the most cost-effective way of getting to work is. Is it to start leasing a car?

For many, driving a personal car still seems to be the obvious choice. However, dig a little deeper into your expenses and you will probably find that it works out to be a lot more expensive than you initially thought. It is easy to consider that you can cash in at a junkyard for your old car, save some money on expenses and get public transport.

An excellent example is a friend of mine, who recently took his BMW in for a service. The bill came to £1,000 for the service and brakes replacement, plus an additional £250 for switching out some old run-flat tires. Each. That’s for a 5-year-old car. It’s not like it’s freshly rolled off the lot, but it’s hardly ready to be dragged to the scrap heap, either.

What are the alternatives to owning a car?

Some might argue that public transport, car-sharing or getting a bicycle are legitimate alternatives to car ownership. Anyone that has enjoyed the privilege of having a car to themselves for any length of time will know that these options really don’t compare. In this context, the most popular alternative to outright owning your car is a lease contract.

What exactly is leasing?

Leasing a car is essentially a long-term rental. You pay an upfront cost for the car (which will be much lower than the purchase price), then make monthly payments to compensate for the depreciation of the vehicle while you’re driving it.

Lease agreements are typically 2-4 years and, at the end of it, you simply hand the car back over and pay for any additional damage that may have occurred. Think of it in the same way as renting a house, rather than buying it.

What are the benefits of leasing?

Leasing a car, compared to buying, has quite a few benefits if you’re in the right situation.

Firstly, there’s the up-front cost. With a new car, you’ll either have to stump up the cash or take out a finance plan to help you afford the vehicle you want – in either case, there will be a hefty up-front sum. The initial cost for a lease car is typically only 3-6 times the monthly payment amount, which will depend on the type of car you’re leasing. This usually means that you can afford to drive a much nicer, newer (and more efficient) car when leasing.

If you’d need to buy a car on finance, you can expect the monthly costs of leasing to be much lower. There is also no lump sum to pay at the end of the agreement unless you damage the car or exceed your agreed mileage.

Maintenance of a lease car is much simpler, too. You won’t need to plan and arrange MOT tests (these are typically handled for you) or pay for the vehicle to be serviced. Just get in and drive, and swap it for a new one if there’s ever a problem.

The only costs you need to budget for will be your monthly repayments and fuel. No surprise repairs, no emergency oil replacements. You can plan out your personal budget without having a contingency fund for taking your car into the garage if something goes wrong.

There’s also the future of transportation to consider. If you aren’t sure about buying an electric car, or whether network changes in your area might make car ownership a disadvantage in the next few years, leasing a car can tide you over while you make that decision.

Are there any drawbacks?

Yes. Lease cars are certainly not ideal for every situation.

The company you’re leasing from will care a great deal about the resale value of the car, so they usually charge a substantial amount for going over the agreed mileage. Expect to pay around 10p per mile. If you drive frequently or take long trips, this can cost you dearly.

Accidental damage will still come out of your pocket. You might not mind a little scuff or parking bump on your own, older car, but you’ll need to get your lease car fixed before returning it or pay the price.

Finally, the obvious: you don’t actually own the car. Much like renting a house, you can walk away at the end of the contract with very little to show for it, other than receipts for a few thousand pounds. This means that the longer you intend to drive a car, the most cost-effective it will be to buy it – particularly if you consciously re-sell it for a good price before it gets too old.

So, when is leasing the best option?

For all the reasons outlined above, leasing works particularly well in certain situations.

If you don’t drive very often, or very far, leasing a car is usually a relatively low-cost option. You won’t need to worry about emergency repairs and you can drive a nice, new, efficient vehicle.

Leasing is also a good choice for people who don’t need a car long-term. Maybe you’re working a contract job and will be relocated in 2-3 years. Perhaps you’re planning to leave the country. You could be slowly working your way to becoming a zero-car household and have already sold your main vehicle. If you see a future where you won’t need a vehicle at all, leasing a car allows you to drive around without worrying about re-selling when the time comes.

Finally, if you want to be able to budget a little more consistently, leasing a car is a viable way of helping you to do so. Fixed, manageable payments (with no repairs, services or MOTs to worry about) are part of the package. Click here, if you want to start leasing a car.