If you are in the market for a new car, there are ways to get one without needing a huge bank loan. Many people are unaware that leasing is an option to drive a new vehicle without the high upfront costs.
We take a closer look at this alternative to buying a car with a large deposit and high monthly instalments. Leasing a car may seem like a complicated process, but we will break it down so you can better understand it.
Read on to learn more about driving your next vehicle without the typically higher buying costs.
What is Leasing
Car leasing is almost the same as renting a car but for a fixed period. So you effectively pay a fixed monthly instalment for an agreed number of miles or a fixed time period.
As with buying your car through a bank loan, a credit check is necessary when leasing a car. You will also need insurance coverage for the car you lease from the company.
When leasing a car, you will have the car for anything from two to five years while paying a monthly payment. The car will not be your property when the agreed period is over. Some leasing companies allow buying the car from them at the end of the leasing period.
Different Types of Lease Options
There are a number of different types of leasing options. Here we look at the four general types used mainly by leasing companies.
Personal Contract Hire
If you want to drive a new car for the next two to five years, this is the option to go for. You don’t need to worry about the vehicle’s depreciation because it will be returned to the company.
How this works is that you have use of the car for an agreed period, and then you simply hand the vehicle back. Budgeting will be easy because the monthly instalments will stay low and consistent throughout the leasing period.
Such things as road tax are included in the contract, so it is something you don’t need to be concerned with. A drawback of this leasing option is that you won’t be able to own the vehicle when the period is over.
Business Contract Hire
This leasing option is similar to the personal contract hire option. The main difference here is that it is meant for businesses. Many business owners prefer this option for their business.
The car is not your or the business’ property when the term ends; you don’t need to worry about the vehicle’s value. Business contract hire will typically last for two to five years, and the vehicle will be returned at the end of the contract.
With this option, there will be a few stipulations on the condition the vehicle will be returned to the leaser. You will be subject to the condition of the vehicle at the end of the contract, known as fair wear and tear.
This is also known as the traditional leasing method for a business. Sometimes, businesses will have multiple vehicles on a business lease contract. That is because it provides a certain amount of flexibility for them.
Businesses that are registered for VAT find this a convenient leasing option. Like other leasing options, a fixed monthly instalment is paid for the duration of the contract. These leasing contracts can last two to five years, depending on the agreement.
This type of agreement can end early, but you will be responsible for finding a buyer for the vehicle. There are also no mileage or wear and tear charges at the end of this agreement. Unfortunately, the penalties can be high if you want to end the agreement early.
It is possible to buy the vehicle at the end of the agreement or keep on using it on a monthly basis.
This type of lease is the same as a contract hire lease agreement. A fixed monthly instalment is paid for the use of a car or van, or other type of vehicle. It can also last as long as two to five years.
There is one difference, though, only the first twelve months road fund licence is included. The lease company still owns the vehicle, but it is registered to you or your company. The vehicle doesn’t belong to you, and you may not sell it.
Your agreement must reflect the predicted mileage used annually. This lease option is not a good idea if you don’t know the predicted mileage use. Vehicles on lease contracts may not be used for business transport, such as a taxi or limousine service.
Why Lease a Car?
When you lease a vehicle, you are simply paying to drive a new vehicle, not own it. If you want to drive a new vehicle every four to five years, then leasing might be an excellent option for you.
Some people may never want to lease a car, while others out there would never buy a new car to own it. It all depends on one’s personal needs. Do you want to own a car or drive a new one every few years?
The most significant advantage of leasing is that you will drive a new model of the brand you like every few years. Another advantage is financial consequence; you will pay a lower monthly instalment than when having a loan from a financial institution.
You also don’t need to worry that the vehicle will lose its value. Lower maintenance costs are also a reality because a leasing contract usually includes a warranty for the duration of the lease.
Many famous brands of cars have great leasing options at affordable monthly instalments. You also don’t need to stick to just one brand when leasing. You can always try out another one with your next contract.
Indeed, you won’t own the vehicle, which some may see as a disadvantage. There might also be mileage restrictions, and you may pay fees if you go over the agreed usage, but they are mostly quite reasonable.
Lease agreements are also not ideal if you intend to end them earlier than the agreed time.
Regardless of the drawbacks, it seems like a pretty good option to lease a vehicle if you don’t need to own it. In many cases, vehicle owners swap out every four to five years, so they are essentially in the same boat.
Do thorough research if you are interested in this solution for your next vehicle, and always use a reputable lease company. Enjoy your ride!