Car ownership is structured around gradual expense: whether you buy first-hand or second-hand, you put down your money and then pay annually to keep it full of petrol, insured and roadworthy. Nonetheless, people are attached to owning a car. Sure, the experience can be undermined by failing an MOT, running out of petrol, being unable to get insurance and the simple fact that accidents may put your car of the road permanently. But that doesn’t mean that the stability and the right to resell that you get when owning you own vehicle aren’t very valid reasons for why ownership remains the norm.
Why then, would you go with the alternative? And what even is the alternative? Car Leasing is essentially a long-term car rental (rental in automotive terms tends to refer to the use of vehicles for trips and vacations). When leasing, you are contractually obliged to pay a certain amount each month, for several months. When leasing, there are numerous advantages, but there are still various disadvantages that need to be considered. Steph Wood from Nationwide Vehicle Contracts takes a closer look:
Advantages for customers
If you have an expensive taste in cars, if you have trouble financing vehicles and if you fancy the idea of changing vehicles regularly, you’re in one of the many groups that would benefit from leasing their car. Principle advantages include:
- Low monthly payments and low initial deposit help you easily find the money for a wide range of vehicles;
- Some leasing companies will pay your road tax and breakdown recovery service costs;
- Pay less if you use less: contracts that are tailored to your motoring needs;
- Renegotiate similar terms every two or more years and get a brand new vehicle;
- Purchase options are provided for your vehicle at the end of certain contracts;
- Depending on region, businesses can often enjoy tax benefits and other perks if they look into van leasing and lease rather than purchase their fleet.
How do leasing companies make their money?
Whenever saving money, it always pays to question how the company giving you a bargain is still turning a profit: doing so can often shine a light on areas where you may not be getting such a great deal. Sometimes, it’s a sheer gamble by the provider: when supermarkets sell countless copies of a blockbuster book, movie or game below wholesale value, they’re simply hoping that everyone will pick up their weekly shop whilst they’re there. Other times, you may be getting “50% extra free” when the product itself has shrunk.
Leasing companies are highly experienced in the art of making money of vehicles during their operational life. This isn’t to say that they will relentlessly offload extras and hidden charges on you, but they do benefit from occasional contractual breaches and because they own the car, they can make money off of it as soon as your contract has expired.
This is self-evident when you look at the term of your leasing contract: the two main factors influencing payment are the duration of your lease and the number of miles you plan to do. Over time, and given varying levels of wear and tear, the remarketing price of your vehicle will depreciate to some degree. Any lease taken out is essentially a promise that you’ll return the car in a certain condition, and failing to keep up your end of the bargain can seriously undermine their profits.
Things to Consider When Leasing
Leasing is a great way to get a succession of cars you want at a price which is acceptable to you, but it’s important to keep the following in mind:
- If you opt for a low mileage contract, changing the contract mid-lease can be expensive, as can paying at the end of your contract period for additional mileage;
- Spend time working out how far you might drive in a contract period, and leave plenty of breathing space – if your place of employment moves or you simply want to drive to a holiday destination, you may be frustrated by the lack of flexibility;
- Even if you stay within your stated mileage, you may still be charged for excessive wear and tear: not every mile is an equally smooth drive;
- The money you save by leasing is inevitably related to the amount of money you could have made if you had owned the car and sold it yourself (however, vehicles can depreciate unexpectedly: you may be dodging a bullet);
- Non payment and early cancellation also incur fees;
- Everything you invest in the car (e.g. maintenance when it develops faults) is lost at the end of the contract period.