Is leasing a car a waste of money?

10/08/2021

Is leasing a car a waste of money?

Leasing a car in the UK has grown in popularity in recent years because most of those drivers find that car leasing is a simple and cost-effective way to drive a new vehicle.

However, leasing is not for everyone and here the Tilsun Leasing team take a look at the pros and cons of leasing a car to help you decide whether you will be wasting your money.

 

Personal contract hire

Leasing a car, or personal contract hire, works in a similar way to a long-term rental.

When you want to lease a car, you simply choose the make and model of the vehicle you want and then pay an initial payment.

This initial fee will consist of the initial rental of one, three, six or nine months of the monthly payment.

You could opt to pay one month but your monthly payments will then be higher, or you could pay nine months and enjoy lower monthly payments instead.

The amount you pay is also determined by the make and model of the car you want to lease, how long you want the lease to run for - 24 months, 36 months or 48 months - and the annual mileage.

How many miles you travel every year is a crucial part of personal contract hire because it has a direct effect on the car's value when you hand it back when your agreement ends.

Essentially, when you lease a car, you are paying for its depreciation and if you travel more miles, the depreciation will be higher.

When leasing a car from Tilsun Leasing, there's a choice of annual mileage limits ranging from 5,000 miles a year, to 30,000 miles.

Most people will be racking up 8,000, 10,000 or 12,000 miles commuting to work and travelling to see friends and family.

We have explained in other car leasing articles why it is important that you estimate the annual amount correctly because you will face an excess mileage charge if you go over your agreed limit

As mentioned, once your agreement ends, the car leasing company will send someone to look over the car for any damage and to make sure that the mileage limit has not been exceeded, and they will take it away.

That's it, there's no surprise payment to pay and you can then lease another brand-new car.

That's not the case when you buy a car outright.

Buying a car in the UK

If you don't want to lease your next new car, then buying is a more complex undertaking.

You can pay for a car using:

  • Cash: Probably the best way to purchase a new vehicle but be aware of depreciation which could be up to 40% in the first three years for some makes and models
  • Bank loan: You sign an agreement with the bank to borrow money which you then repay but you own the car from the first day
  • Personal contract purchase: Also known as PCP, this is a popular type of finance to purchase a car. Normally, there's a need to pay a deposit, you then pay monthly instalments and you're given the choice of buying the car at the end, or not. This amount is known as a balloon payment and should be checked carefully before signing because it can be quite high
  • Hire purchase: With hire purchase, the cost of a car will be split into the deposit and monthly payments. Until the final payment is made, the car is owned by the hire purchase company.

It's also important to appreciate that when you look at the monthly payments for the routes to buying a car listed here, leasing usually offers the lowest amount.

 

Who owns the car?

As mentioned in the previous section, the ownership of the car is a straightforward issue to understand and it's an important one too.

  • Cash: You buy a car with cash, it's your car and you own it
  • Bank loan: You borrow the money, and you own the car from the start while you repay the loan
  • PCP: Until you pay the optional final payment on a PCP agreement, and the car is owned by the manufacturer or finance firm. Once you meet the balloon payment, the car is yours
  • HP: The carmaker or finance company will own the car until the last payment is made
  • Leasing: The leasing company will always own the car and there's no option to buy it when your agreement ends.

 

The pros of leasing a car

If you're thinking of leasing a car in the UK, there are some pros to understand, including:

  • Leasing tends to be the cheapest way to drive a brand-new car
  • The monthly payments are a fixed amount
  • Leasing prices make desirable and premium marques more affordable
  • The road tax is included, and some leasing companies offer roadside assistance
  • You can opt to include the maintenance and servicing bills too.

 

The cons of leasing a car

  • You will be renting the car with a lease
  • There's no option to own the vehicle once the agreement ends
  • You will need to adhere to the strict mileage limits
  • Be aware of wear and tear charges
  • Cancelling a car lease agreement can be expensive
  • You will not be allowed to modify a leased car.

The pros of buying a car

Having looked at the pros and cons of leasing a car in the UK, there are pros and cons of buying too. The pros include:

  • There are no annual mileage restrictions
  • There's no wear and tear damage fees
  • You don't need permission to modify your car
  • Buying tends to offer better long-term value
  • If necessary, you can sell the car when you want.

 

The cons of buying a car

  • Depreciation is a big issue when buying a car
  • With cash, you will need to pay all of the money upfront
  • It's an expensive undertaking buying a new car every few years
  • When selling a car, it will take time and you may lose out on the car's valuation.

 

Is leasing a car a waste of money?

Here, we have taken a closer look at the question of whether leasing a car is a waste of money, and the answer is, 'it depends'.

A lot depends on your personal circumstances and whether you have the cash to pay outright for the car.

If not, then leasing makes sense since you need a low deposit, and the monthly payments are reasonable.

The obvious downside is that you never get to own the car and you are effectively renting it from the car leasing company.

If you have any questions about leasing a car, then contact the team at Tilsun Leasing on 03330 040 888 who will be happy to answer any questions.

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