There are multiple ways to buy a car nowadays and, understandably, it can be quite overwhelming to decide which road to take, with all the plethora of options being thrown at you.
However, two words often pop up front and centre as you research the market for your next car: car leasing vs. car finance. Many people use these terms interchangeably, but the truth is both are unique and offer a different way to drive your favourite car.
Car Leasing explained
Car leasing is a process where you put down a sum of money to rent your car of choice for a limited amount of time. However, there are specific features in a car lease which must be fully understood in order to decide if leasing is indeed right for you. We’ll be discussing those in detail later in the article.
Here are some quick reasons as to why you’d want to choose car leasing over car financing:
There are a number of benefits to leasing a car although many people are put off by the jargon or technical terms associated with car leasing, which can sometimes be confusing. Plus, some lenders can make the entire process more complicated than it has to be.
Car leasing generally means that you don’t own the car but you get to drive it. That may seem like a disappointment initially but there is a major upside to this: you can try out a new car every 2-4 years. You can even try out variations of the same model or go with a different make altogether. Plus, when leasing, your monthly payments are typically 30-60% lower than what you would pay if you had bought the same car.
Additionally, choosing car leasing over other ways means that you can personalise the leasing agreement to better suit your requirements – such as the amount you want to put down initially, the vehicle’s mileage limit before incurring extra charges, and the lease’s duration.
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Car Financing explained
Buying a new car for yourself or one for the entire family, for example, can be a major financial commitment. And, this is why many people decide to buy it through a car financing scheme, rather than outright pay the lump sum. Before we discuss the potential upsides of choosing car financing vs. car leasing, we should quickly discuss some of the plans available under car financing, as the process for certain plans can be a bit tricky at times:
PCP
Personal Contract Purchase (PCP) is ideal for people who regularly like to own or try out different cars. It’s somewhat similar to leasing, involving a sum of money to be paid up front, followed by monthly instalments over a set duration. Towards the end of the term, you’ll pay a lump sum to fully own the car or you can even sell it to pay off the remaining amount. Alternatively, you can return the vehicle and you won’t have to pay off the remaining payments.
Personal lease
Even though personal lease distinctly stands out from other car financing plans, it is still a type of car financing, and not car leasing, even though the name implies otherwise. However, under certain kinds of personal car leasing agreements, you can own the car after the agreement expires.
HP
Hire Purchase (HP) is a well-known type of car financing scheme where you usually put down 10% of the car’s price and repay the rest with interest over a certain timeframe. Once the loan is fully paid, the car is yours.
Now, when might it make sense to choose car financing vs. car leasing?
Unlike car leasing, different forms of car financing are beneficial to those who feel that they absolutely must own the car one way or another. Plus, unlike car leasing, there’s no mileage limit involved.
Finally, one other thing you want to consider is that people typically finance their cars for up to 6 years, which may or may not suit your personal circumstances, depending on how long you want to own the car.
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Car Leasing vs. Car Financing – Pros & Cons to consider
Car financing – Potential cons
- A poor credit score can pose a bit of a challenge, although it’s not a “be all, end all” kind of situation. You can still look for a lender willing to give you a loan or ask a guarantor to back you up.
- If you’re unable to put down the initial deposit, then securing a loan may be challenging. Plus, not keeping up with the monthly payments means it will impact your credit score negatively.
- The car’s value will depreciate over time, so that’s a factor to consider.
- Depending on the car finance plan or agreement you take out, you may need to put down a large sum to cater to the balloon payment towards the end of the fixed period.
Car financing – Pros
- You’re taking out an unsecured loan, which means there’s no need to pledge a personal asset as security.
- There’s plenty of flexibility, with multiple lenders and loan types available. You can even have the loan repayment duration changed according to your preference.
- You own the car fully, which means you can sell it later or even modify it any way you like, although you still need to stick to your repayment schedule.
- The monthly payments are fixed.
Car leasing – Potential cons
- The car is never truly yours – it’s just a long-term rental agreement. Once that’s over, you must return the car.
- There may be extra charges to consider – such as, when you exceed the agreed upon mileage, in which case, the lessor may impose a penalty.
- Any damage to the vehicle will incur additional charges when you return it.
Car leasing – Pros
- Change cars as frequently as you like – perfect if you want to try out different makes/models from time to time.
- No concerns around the car’s value depreciating over time since it’s not yours.
- Fixed monthly payments allow for easy budgeting.
Conclusion
Deciding which one is right for you can sometimes be a complex ordeal. But it doesn’t have to be. At Liber Financial, we listen carefully to your personal preferences for owning and driving a car, recommending the best plan and offering easy-to-understand car financing options to help you own your dream luxury or prestige vehicle.
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