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Why Leasing Your Next Car Makes Better Sense Than Buying One!

Dec 25, 2007
In the UK motorists have historically preferred to always 'Buy' their new cars by using up their savings or taking out a personal loan, neither of which make sound financial sense, for one main reason, DEPRECIATION!!

Every single vehicle sold in the UK today loses a huge amount of its value over the 1st 3 years of its life, infact a large percentage of these vehicles being worth less than 40% of the initial purchase price after 3 years. For example an executive car purchased for 30000 pounds could be worth less than 12000 pounds after only 3 years, frightening isn't it! And yet in the UK people continue to buy their new cars, but why?, because if I compared it to home buying for example, you wouldn't want to buy your next house for 200,000 pounds to find that when you wanted to move 3 years later that it was only worth 80,000. pounds

It is because of this steady decline in vehicle values across the marketplace that several interesting alternatives have started to become of interest to the private individual, despite many businesses having used these alternative means of obtaining their company vehicles for many years.

One of the interesting features of obtaining vehicles via these means is the fact that for years business users have managed to take advantage of huge discounts of thousands of pounds off their new cars, whereas the man on the street used to be happy with 500 pounds off and a set of mudflaps/full tank of fuel and think they were getting a good deal! Now the private individual is able to receive the same huge discounts off their chosen vehicles as well by using vehicle brokers, so that's a huge saving already.

The most popular of all these funding types is Contract Hire be it personal or business, which in a nutshell means that the car is purchased on a set contract for example over 3 years based on an annual mileage of 10,000 miles per annum . The customer pays a small initial deposit of the equivalent of 3 monthly rentals before delivery of their new car and pays the balance over the 3 years, and at the end they simply hand the car back and start again. In every case the client will find that the amount of money they have paid to run their car for the 3 years is less than what they would have lost had they purchased it instead.

The other bonus is during the entire contract their road tax is included and paid for, and they have the full manufacturers warranty and roadside assistance, just as they would if they'd bought the car. The only additional costs they may have at the end of the contract is if they have gone over the agreed mileage, and for that they would have to pay the agreed excess pence per mile charge.

For those individuals that still want to have something to 'show' for the money they've spent over the years, there is personal contract purchase or PCP as most people know it by. With this type of contract as with Contract hire the individual takes advantage of fleet discounts again and pays a similar 3 payments in advance followed by 35 payments as before, but has set out at the beginning of the contract something called a Guaranteed future value, which is the amount that the funder values that vehicle will be worth at the end of the contract term. So once the client has reached the end of the contract, rather than simply handing the car back as with contract hire, they have 3 choices:
1. They can 'pay' the GFV and then by rights they will 'own' the car, so it is theirs to sell on, part exchange or continue to use. This is where some clients like to try to make some money back, by selling the car on for more than they have just paid for it, but this has the added inconvenience of having to advertise and deal with potential buyers of your car.
2. Alternatively they can choose to refinance the GFV and therefore continue to use the vehicle till that agreement has been paid off and again at that point the client will 'own' their car.
3. Or finally they can just choose to hand the car back to the dealer and start again.

So hopefully over the coming years more and more private individuals will keep the majority of their hard earned savings in the bank or invest in property, but never should they look to 'Buy' their next new car.
About the Author
Shaun Parker has been at the forefront of the car hire and car leasing industry for several years. He has arranged finance for hundreds of satisfied customers.
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