How Leasing a Car Can Save You Money
Owning a car can be a heavy financial commitment, often in such a way that the costs are somewhat hidden and only a proper analysis of your personal accounting shows up the true outlay necessary for owning a car.
For most of us, of course, having a car isn’t a matter of choice but one of necessity. As a society we travel further to work, need the car to get the children around and find it difficult to even shop for food without the convenience of a vehicle to bring the shopping home.
So how do we properly factor that cost into a monthly budget?
In order to properly understand the cost of a car, it’s important to take everything into account.
Many people would be easy to convince that a low-priced used car is cheaper than a brand new one, or that there’s some middle ground around the £6,000 to £8,000 mark where you can hit a sweet spot, but the truth for fans of used cars is a lot more disheartening.
Unless you are a mechanic or a car specialist, there’s very little chance that you are going to get a deal on a used car that doesn’t require some additional spending in the first few months. It can be worthwhile, as once you’ve gone through that painful teething period, you end up with a vehicle you can trust – well, at least until its next MOT!
Car leasing, on the other hand seems to offer everything – a new car (which has its own huge spread of bonuses, from the delightful smell to that feeling of driving something packed with the latest technology), easy-to-budget set monthly payments, and no MOT in sight! It can look expensive on paper but is often much cheaper than the used-car alternative.
What are the financial advantages and disadvantages of car leasing against car ownership?
Let’s look at three examples and break them down to a monthly cost over three years:
Example 1 – A £2,000 used car with 88,000 miles on the clock
Car A is close to a ten-year-old car - it’s a little battered but still looks nice. 88,000 miles isn’t too many for the age and it’s not showing any signs of bodywork damage. In the first few months however, it needs an extra £800 worth of work done on it (clutch perhaps? Drive shaft? Brakes? Tyres?), bringing the total cost to £2,800.
Fuel consumption is OK and driving 1,000 miles a month comes in at a little under £200 in fuel. It needs an MOT after the first six months and the service plus MOT plus a few extra fixes comes to a relatively reasonable £350.
A breakdown at the tail end of the first year shows a fault costing another £200. Sundry fixes in year two, plus another MOT, servicing and some more tyres totals £1,100 in the year. Year three is relatively uneventful and the MOT and servicing and extra bits comes in at £650 over the year.
By the end of year three, the car has cost a total of £5,100 and a resale value of £400, so a total calculable cost of £4,700. Considering just the running cost of the fuel and the car, its cost works out at £330 per month.
In terms of experience, you’ve been driving a 10-13 year old car which had a major breakdown (and probably some minor ones).
Example 2 – A £6,000 car with 40,000 miles
Car B is only 5 years old, it’s in pretty good condition, comes with satnav and a host of other features that make the driving enjoyable. The driver side even has heated seats. Fuel consumption isn’t amazing, and 1,000 miles is costing between £180 and £250 per month depending on how careful you drive.
Despite being promised that it’s in great condition, the first few months cost £430 in fixes due to some wear in the pipes. An end-of-year MOT and service adds £220 to the first-year costs.
Year two, the car keeps going well. Some new tyres add £300, but the servicing and MOT at the end of the year come to a strong £200.
A heating problem and some other issues in year three while driving in London end up costing almost £900 alone, with an extra £100 in expenses due to having to get taxis and other issues. The end of year service shows up a couple of other problems and that year’s MOT and service total £345.
By the end of year three, the car manages to sell for £2,900. Total calculable costs came to £5,595. Giving the benefit of the doubt to the fuel at £180 per month makes the monthly running cost for three years £335 – almost exactly that of car A.
In terms of experience, this was a much nicer car to own than A, though that one horrible problem marred an otherwise enjoyable time.
Example 3 – A brand new leased car with 0 miles on personal contract hire!
Car C is a brand-new saloon with many modern features including parking assist and cruise control. Its lease cost is a little under £250 per month. There’s an initial fee of £300 and the first payment is a three-month cost of £750.
However, over three years there is little to pay on the car. The maintenance contract of £25 per month (inc. VAT) covers servicing and tyres, a brand-new car doesn’t need an MOT for the first three years and there’s a warranty that covers all other issues.
Fuel consumption is good too – with good MPG and a fresh engine that delivers close to the advertised amount, 1,000 miles per month costs a little more than £120.
At the end of the three-year contract, the car is returned and there’s no need to sell it on.
The total calculable costs (monthly lease plus maintenance plus fuel and with the initial costs added) come to £425 per month.
Car A (£330 / month) was a poor driving experience, a constant worry and required comprehensive breakdown cover. It did, however, require the smallest initial outlay.
Car B (£335 / month) was an acceptable driving experience, though a single large problem caused a significant worry and stressful time. The extra £5 per month is negligible but the initial outlay was huge in comparison to both car A and C and might have needed a personal loan or other car finance to even make possible (adding considerable levels of interest to the deal and potentially bringing the £335 / month figure closer to £380 or more).
Car C (£425 / month) is the most expensive overall, though it has the smallest initial outlay. The driving experience is superb and the lack of concern regarding driving at any time is a huge weight off your shoulders. Breakdowns are pretty much non-existent and the joy in driving a new car is not to be underestimated.
It’s true that there’s a £90 potential difference per month between the used cars and the leased vehicle, but the difference in peace of mind is substantial and the far lower initial costs make it very affordable.
These examples also show the random nature of a used car. Example 2 is lucky that there was only a single incident costing around £1,000. Over three years, many car owners experience situations like that at a far greater number of times, and each time they are left having to make the horrible choice between writing off the car and having to start again or paying the bill and hoping it doesn’t happen another time.
There are two main types of lease – business car leasing or personal car leasing. Obviously, if you are planning on leasing through your company, you’d choose the business type where going the direct route means opting for personal car leasing. Some dealerships prefer to lease to businesses where others are open to all – you will be able to find a good deal for the car you are after.
To lease a car, you will need to pass a credit check. Take a look at our articles on the subject to learn all about credit checks, but a ‘fair’ rating isn’t going to be enough for most finance companies. Get your credit up to a good level before going for a lease.
Because lease cars are straight out of the showroom, you will be getting your hands on a brand-new car that is probably outside your normal budget. In fact, leasing is the best way to save money when getting a brand-new car and opens the door to vehicles you would have never dreamed of driving.
To get a leased car, you can either go to the car dealership or find a good broker. Here at Compare UK Quotes, we have done much of the legwork for you and are happy to recommend Complete Leasing – their huge range of vehicles plus impressive offers meet top-quality customer service.
Once you are ready to go, with the car chosen and the money in the bank, it’s just a case of calling up Complete Leasing and going through the paperwork! You could be having a brand-new car delivered to your door within a day or so.
It obviously depends on the car - some smaller vehicles can be leased for a little over £100 per month, while a brand-new Tesla self-driving electric car can stretch you to over £2,000 a month!
There a few things to note about paying for your lease:
- Your initial month will typically be a three-month payment so you may need to save a little for day one.
- You will have to get fully comprehensive insurance. This shouldn’t be much more expensive than any other insurance but must be in place before you can accept the car. Read more about car insurance here.
- It’s worth getting an additional maintenance contract to cover servicing and tyres etc. Expect to pay between £20 and £40 for this per month.
- Don’t forget GAP insurance.
- There will be a one-off broker fee, typically around £200 to £300.
Earlier in this article we looked at the costs associated with car ownership vs. leasing and the simple understanding that peace of mind and the ability to budget the same amount month are worth so much. There are other benefits of leasing, however, including:
- Brand-new car! There’s no saying this enough – the fact you get to drive a new car is huge for most people.
- New technology – with a new car comes all the latest gadgets.
- Upgrades – just like your mobile phone, once your contract comes to an end you can upgrade to the latest model or change to a completely different car.
- Better fuel economy – new car, new engine, better performance.
- Support from the leasing company – it may sound like a small thing but knowing there’s someone you can turn to for advice can be a huge boon.
- No massive initial outlay – yes, you need to find a three-months payment up front, but that’s peanuts compared to buying a car!
- Tax offsetting – if you are doing it as part of your business, there are some great tax advantages.
You can trust us at Compare UK Quotes to have done the research for you! There are plenty of places you can buy or lease a car in the UK, but if you really want some top-quality customer service, a wide range of choice cars and the best deals we heartily recommend Complete Leasing. Head over there now to see what’s on offer.