Thursday, October 6, 2022

Should you lease or buy your next car?

In the UK, you can lease or purchase a vehicle depending on your preference. While many people prefer to buy a car, some prefer leasing and paying monthly rent or fees. Different vehicles are calculated differently, based on the year, make, model, and miles travelled. Most people also choose depending on how much money they’ve saved up.

Personal Contract Purchasing (PCP) finance and Personal Contract Hire (PCH) are excellent methods to become more mobile. Both options offer great chances to drive a brand new car without paying for the entire amount outright or with cash.

Cars come with several liabilities like taxes, insurance, and paying for parking. While it is mandatory to pay a fixed price for government taxes, insurances, and more, you do not need to stress about parking anymore. It is easy to book a convenient, safe, and secure spot at affordable hourly, weekly or monthly rates with YourParkingSpace.

Let us look at whether you should lease or buy your next car.

Before we start, there are a few similarities between PCP and leasing. These similarities are:

  • Mandatory deposit required
  • Fixed monthly payments offered
  • Limits on mileage
  • Excess mileage charges
  • Payments usually include the warranty, breakdown, road tax, and delivery

Let us look at each in detail.

Personal Contract Purchase (PCP):

A PCP is like a car loan, but owners only borrow a small amount equal to the difference between the car’s current value and expected value at the end of the contractual agreement. There is a mandatory deposit, but these amounts are flexible and pre-decided by the car dealership and the car owner. Many times, there is no deposit. However, putting down a decently-sized amount can make the monthly car payments much lesser in the long term.

PCP terms are pretty flexible too. The usual payment terms are based on a duration of two, three, or four years total. However, most people can pay it off earlier depending on the agreement terms with the dealer. At the end of the period, you can also choose to make balloon payments to fully own the car. If you decide not to own the vehicle, you can finish the payments according to the terms and simply return the car. You are not under any obligations to own the vehicle once you’re done using it and making the payments.

Many times, PCP has the servicing and maintenance included in the deal. However, there would also be an additional allowable mileage allowance. You could be charged if you cross those limits.

Personal Contract Hire (PCH):

Personal Contract Hire (PCH) or leasing is nearly always done for new cars. Many times the ticket prices on these cars can be lower than PCP and cash deals. This decrease in the rates is because leasing companies purchase cars from manufacturers at heavily discounted rates. They then pass on the savings to leasing customers to make the offer more lucrative.

While most of the conditions between PCP and PCH are the same, the main difference is that you cannot make a balloon payment to own the car at the end of the term. You must return the vehicle once the terms are fulfilled. Most people who enjoy changing cars every few years and like to drive newer models opt for PCH options so they can keep experiencing the thrill of driving newer models and varieties of vehicles.

However, the leasing company runs a thorough credit check on the borrower, and the payment terms could change based on the credit ratings. You would require a good credit score to get approved for lower monthly payments.

Like PCP, PCH also requires an upfront deposit with a series of regular monthly instalments or payments and usually has a mileage limit. Crossing the limit could attract additional charges.

Is Leasing Or Buying Better?

From an investment perspective, you have nothing to show at the end of the lease. However, PCH allows you to use brand new cars at a much lower price. If you purchased such expensive cars, the down payment and loan instalments would probably be much higher. Leasing also makes sense for cheaper, smaller utility cars to run errands, chores and drive the kids to school.

PCP options are suitable for people looking to make an investment. At the end of the term, the car ownership can get transferred with a sizable payment. However, you must also include the depreciation costs and run a cost vs value analysis.

You could opt for either PCP or PCH, depending on the reason for needing a car.

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