"If it appreciates, buy it. If it depreciates, lease it."
J.Paul Getty, billionaire oil tycoon.
Car leasing allows you to benefit from having a new car and changing it every 2, 3 or 4 years without losing thousands of pounds in negative equity.
Very few people have the capital to buy a new car without some sort of financing, even if you do have the capital to purchase a new car outright you will still lose serious amounts of money should you chose to change it within 4 years.
It is well established that a high percentage of people have been caught out by buying a car on long term dealer finance or taking a personal loan, then 2 to 3 years down the line choosing to change the vehicle only to find the finance settlement figure is substantially higher than the trade in value of the vehicle therefore resulting in a status of negative equity.
Negative Equity poses a big problem, There are two possible options and 2 outcomes once this starts and neither are very positive.
You decide to continue with your current car and see out the period until the finance ends. You now own the car and have an asset, however little it may be worth at this point. You can then sell or trade in against a new vehicle.
The dealer convinces you to fund the negative equity in with the new car finance, therefore if you have £2500 of negative equity and the new car is £10,000 you finance £12,500 against that car. 3 Years down the line you again want a new car, you again have negative equity but this time its doubled! As you started with £2500 at the point of sale.
Car leasing, also known as Contract hire.
In the past contract hire has been associated with business and company fleets however this is no longer the case. Personal car leasing is increasing rapidly throughout the UK with personal contract hire or personal contract purchase (PCP) being the most popular.
As an example, if you lease a £25,000 car that will resale at £18,000 after 36 months (known as the residual value), you pay for the £7000 difference over the 36 Month term, plus finance charges, plus possible fees.
When you buy, you pay the entire £25,000, plus finance charges, plus possible fees. This is the reason why car leasing offers substantially lower monthly payments than buying.
It's a fact that at the end of the lease you will not own the vehicle, However what you don't own is the same part of the car the buyer will also not own at the end "the depreciated part". They to have lost this money! Again, a car's value depreciates the same amount whether it is leased or purchased. That money is gone forever, lease or buy.
Leasing your car through contract hire gives you the benefit of knowing what you are required to pay each month with no payment when you hand the car back at the end of the lease. In most instances you have a brand new car with a manufacturer's warranty.