Finance Roll

What is leasing?

Leasing offers you access to a brand new car in return for low, fixed monthly payments over a defined contract period. You only ever pay a portion of the car's value whilst you use the vehicle.

At the end of the lease, you either hand the car back or buy-out the lease.

What is financing?

When you buy a car on finance, you pay the full purchase price, plus interest over the term of the loan agreement. You may have to produce an initial lump sum payment, but the majority of the amount, including taxes, will be rolled up into the loan. You make payments based on the interest rate determined by your loan provider. When the loan payments are complete, the car is yours.

So, what's best for you?

It comes down to a number of things, so let's look at the pros and cons to make things a little clearer.

The benefits of leasing

Monthly lease payments are generally cheaper than loan payments. There is little or no down payment required and the monthly costs can sometimes often cover maintenance and servicing too.

At the end of your lease agreement, hand in your old vehicle and drive away a brand new car with a new lease contract. Leasing can certainly seem an attractive option, but it's not always that simple.

The downside to leasing

All lease contracts come with a mileage cap. Creep over that limit and expect hefty charges for those additional miles. There are also extra charges for excessive wear and tear, so you need to keep your car in good shape to avoid any costly extras.

Leased cars are generally subject to higher insurance rates too. Coverage may include GAP insurance which is needed to pay off what is still owed on the lease if the car is written off or stolen.

Ask yourself whether your current financial situation is likely to change. If you need to end your contract early or you're considering an early buy out, you will face steep penalties.

Early buy outs are complicated. The price is made up of what you still owe and the car's lease-end residual value based on the initial lease agreement. Lease-end buy outs are a little more clear cut. If you intend to keep the car long-term and the residual value is favourable, then buying outright via a financing agreement can be a cost effective option.

The pros and cons of financing

The main pull of financing a car is that you will one day own it outright.

If you want to escape the tie of mileage caps, wear and tear policies and buy-out penalties then financing could be for you, particularly if your lifestyle is changeable.

The downside hits when you come to sell or trade-in your car. As you know, new cars depreciate much faster than second hand vehicles. Financing and reselling on a regular basis could get costly.

And so; to buy or lease?

Ultimately, lifestyle is a huge factor. If you like the idea of a new car every 2-3 years and you don't mind the contractual tie, then car leasing can offer access to low-mileage used cars or even brand-new vehicles at relatively low costs.

If you're thinking longer term and you like the idea of owning your own car and enjoying a future free from monthly payments, then financing may be the right choice for you.