Leasing – Is It Worth It?

Car leasing is becoming more popular in the UK as people like the idea of driving a car they wouldn’t normally be able to afford. Monthly payments are affordable and once your contract is finished you can swap your old car for a new one.

Leasing basically means that you are hiring the car over a long period of time. Contracts usually run for three or four years. All you need to do is work out how much you can afford to pay each month, find the deposit and then check out the leasing deals with your budget in mind.

An upfront payment can be around a £1,000, although you will pay more for a luxury car. There’s also a charge to process the paperwork which is between £100 and £200. You’ll need to be credit checked before you can take out a car lease. If you want to know your credit rating before you apply, get hold of your credit file from one of the main credit agencies like Equifax, Experian or Callcredit.

Leasing may also include road tax and breakdown cover. You might also be offered servicing for an additional monthly fee. Check the amount you pay includes VAT.

Like any leasing contract there will be conditions. They will include:

  • Handing the car back at the end of the contract in good condition. If it is damaged, you might be responsible for the repair.
  • Your lease will have a mileage limit. Some contracts let you choose your limit. Lower limits mean you pay less. Some leases though, especially cheaper ones will have an 8,000 to 10,000 miles per year limit. At the end of the contract if you’ve gone over your limit you will have to pay anything between 3p and 10p a mile, although premium cars like BMW will charge more.
  • Write-Off Value. If the car is written off in an accident and the write off value from your insurer is less than the leasing company’s valuation, then you might have to pay the difference.

The Pounds and Pence

You can find offers for small cars at around £120 a month. For example, if you look around the web you can hire a Fiat 500 for just under £126 a month. You can maintenance and servicing to that for an extra £27 a month. Then there’s the upfront payment of around £700. So, if you lease this car with servicing for a period of 48 months, you’ll have paid out just over £8,000.

A Seat 500 sells for around £13,000 and to buy one using a personal loan from a low interest lender means you would have to pay out £288 a month over four years. But it is possible to buy a cheap small car for under £10,000.

If you want to hire a premium car then leasing might be worth it. For example if you fancy driving a BMW 430i which sells for £47,000 you can lease it for a period of four years and pay around £27,000 over those 4 years. 

Drive your Dream Car?

If you’re happy to accept the conditions and the fact that the car will never be yours, then renting is a way round driving the car that you want but can’t afford to buy. But it doesn’t make financial sense if you’re happy to drive a small or family sized car. Better to buy what you can afford and look after it so it looks good for years. 

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