Car leasing - the pros and cons

Caroline Cassidy

A new car is one of the biggest purchases you'll make in your life, and for some, finding a deposit or getting finance are just not a viable option in these times of economic uncertainty.

Car leasing tips
Car leasing tips

Pic: Getty

There is an alternative, however, in the form of car leasing. We check out the pros and cons, and how to get a good deal.

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What is car leasing?
Effectively, a lease is a long-term rental agreement for a vehicle, giving drivers sole use of the vehicle for a set period of time whilst making fixed monthly payments. To lease a car, you normally need to put down a deposit, usually equivalent to around three monthly payments. Lease periods tend to run for two or three years, at which point you simply hand the car back to the dealer.

The pros
First and foremost, the initial financial benefit is clear. The deposit sum will almost certainly be considerably cheaper than that needed to purchase a car, and monthly payments are often cheaper than those you would pay if buying a car on finance. There's also no need to think about depreciation. New cars are generally worth half their purchase price within just three years of ownership, but with a leased car, you simply take it back when the lease period ends.

Secondly, leasing affords you the opportunity to drive a top-of-the-range, luxury vehicle - one which you may not be able to afford if you were buying. And since most leasing packages allow you to essentially swap your existing motor for a newer model once the lease period is up, you won't run the risk of age-related maintenance issues, and can drive away in an up-to-date model every two or three years.

Safe drivers can also rest easy in the knowledge that repairs and maintenance costs associated with normal deterioration of the car are paid for by the owners, i.e. the dealer from whom you leased the car.

It can also be useful for the self-employed or business owners, who can claim back the cost as an expense.

The cons
While the initial outlay and monthly payments for a leased car are undoubtedly cheaper than buying, lease several cars over a longer period of time and you will end up paying more than the purchase price of a vehicle. Handing the car back at the end of the lease also means you don't benefit from the sale of a purchased car, which means if you plan to buy your next motor, you'll still need the deposit.

Another potential pitfall is the possibility of penalties. The average leasing contract stipulates a fixed mileage limit for the period. Exceed the limit and you're liable to pay a per-mile fee, which can vary greatly depending on the make and model.

Accidental damage and failing to maintain the interior and exterior of the car to what the lease company deems 'reasonable condition' will also result in extra charges, so it's worth really looking after a leased vehicle. And if you decide to return the car before the lease period is up, you'll likely be liable for a further penalty, unless you are trading it in for another leased or purchased car.

Getting a good deal
If you decide that leasing is the way to go, it is essential that you don't get carried away or sucked in by sales patter, and concentrate on the details of the contract.

Do your sums thoroughly before you agree to anything, factoring in how many miles you realistically expect to do, how much you can afford each month, and the cost of comprehensive insurance (a must for anyone leasing a vehicle). While your dream car might be a shiny new Range Rover, if you can't afford the monthly payments and end up missing any, you'll have to pay sizeable charges. Go on budget rather than your idea of the perfect vehicle.

If you plan to lease from a car dealership, it's worth getting the salesperson to agree on the purchase price of the vehicle before you reveal your plan to lease. The monthly payments and deposit price are largely based on the purchase price, therefore it pays to pin the dealership down on this before you ask for a lease agreement.
Both dealerships and independent leasing companies have a tendency to 'hide' extra fees too so it is important to check the small print for potential penalty pitfalls, leasing fees, interest rates and VAT. Be aware, for instance, that what the leasing company quotes on their website may not include VAT, and neither will the penalty charges for exceeding the mileage - both could make a significant difference to your pocket.

With all this in mind, it's a good idea to take a car lease contract away and study it thoroughly - if nothing else, it will enable you to shop around, compare prices, and potentially negotiate a better deal.

Do you lease a car? Would you recommend it, or have you been bitten by hidden charges? Leave your comments below...