Car Leasing V Buying
Car leasing is the future of owning new cars and changing them every 2 or 3 years without losing thousands of pounds in negative equity.
Very few people have the Capital to buy a new car without some 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 7 years.
In our experience and through customer feedback we have established that a high percentage of people have been caught out by buying a car on Dealer Finance or taking a Personal loan then 2 to 3 years down the line choose to change vehicle only to find the settlement figure is substantially higher than the trade in value therefore resulting in a status of negative equity.
Negative Equity poses a big problem, There are two options and 2 outcomes once this starts and neither are positive for the consumer.
Option one (The sensible Option)
The consumer decides to continue with their current car and see out the period they financed till the end, where by they now own the car and have an asset however little it may be worth at this point. They can then sell or trade in against a new vehicle.
Option two (The Vicious Circle)
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.
The Solution to this is Car Leasing, also known as Contract hire.
In the past contract hire has been associated with business deals and company fleets however this is no longer the case. Personal car leasing is increasing rapidly throughout the UK and is following the American new car sales market.
Buying v Car Leasing example
As an example, if you lease a £20,000 car that will resale at £13,000 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 £20,000, 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.
With Car leasing, you have the option of putting your monthly payment savings into more productive investments, such as ISA’s, Savings that have the possibility of increasing in value. Financial experts encourage this practice as one of the benefits of leasing, though most people will no doubt find other uses for the money they save such as paying for a better social life, of other luxuries such as clothes, holidays etc.