There was a time in the UK where the options for owning a car were less than they are today. You could either buy a new or used car with cash or you could do get an HP (now called PCP) deal. Generally, the used car market was the most common option for a lot of people and a lot of the new cars you saw on the road were actually company cars. These days things have changed. Company cars are becoming a thing of the past due to tax costs and in recent years leasing has become more and more popular. Along with that personal contract purchase deal have also got better and better.
As a result, we are seeing more and more new cars on the road and the question about how to buy a car has got a lot more complex. There are certainly advantages and disadvantages to all of the options and it often comes down to what is right for you and your circumstances.
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Buying or Leasing?
This is the big question at the moment and even within these two options there are choices to be made so we thought it would be useful to go over some of the major points to help you decide on the best way to buy your next car.
Definitions
Let’s look at some definitions first so everything is clear.
Buying
Buying a car is obviously paying money to own the car outright for as long as you want to. But within this there is obviously buying new or used cars as well as using a loan to buy either.
Leasing
In its pure form leasing is essentially a hire system. PCH – Personal Contract Hire. You pay to have the car, then give the car back.
PCP
Personal Contract Purchasing is often confused and rolled in with leasing and it is very different. It is worth covering it here but for the purposes of this post we are looking at leasing specifically. With PCP you pay an initial deposit and a monthly fee for a given period. At the end of this period, you have the option to pay a balloon figure and own the car outright. At this point you can also often exchange the car for another newer car and a new deal.
Comparisons
There are lots of questions around this topic like “is buying a car cheaper than leasing?” and “is leasing a car good value?” and for good reason. We all want to get the best deal, but it is important to remember it is not all about what is cheaper. The word value is probably more accurate, but it is also about what works in the long term as well as things like ongoing costs and potential future issues like repairs and changing cars.
Buying a Car Outright
This is often referred to as buying a car with cash but obviously very few people arrive at a dealership with a huge wad of cash these days. You may choose to get a general or specific car loan to purchase a car outright or you may even take up a dealer on a finance offer. So there are a number of ways in which you can own a car outright but once you have bought it the considerations are much the same.
New or Used
There is a big choice within the option of buying a car. You can choose to buy a brand new car or a used car. Even within that you can choose to buy a nearly new car or general used car. Most dealerships will offer very low milage almost new cars and ex-demo cars for sale and these can be a great choice.
Used cars can be great value but you need to do your research, use our car checker to find out everything about a car you may be looking to buy. You are unlikely to find one with a warranty and you will need to cover all the costs. If you are going for a used car make sure you do your research. Car Guide have a very detailed car checker where you can find out the history of car, MOT failures, running costs and much more.
Nearly new cars are cheaper than new cars and you may not suffer the same level of depreciation. Most will come with a warranty too.
New cars are obviously going to be the least likely to have any issues and come with warranties that cover any issues that may arise.
Considerations When Buying a Car
First of all, when you buy are car it’s yours. It may seem simple, but it is important. You own it, you can do pretty much do what you want with it. This means you could modify it if you wanted too. You can buy different wheels, put stickers all over it, you could have it wrapped…the list goes on. You can also treat it as badly as you wish.
Running Costs
One of the key factors about buying and owning a car outright is you are solely responsible for the running costs. This means road tax, servicing, repairs, insurance and MOT tests. It is really useful to factor in the running costs when thinking about buying a car. Do some research and look at average costs. Look for common faults and things that may go wrong. Check prices for tyres too. Sometimes it’s easy to get excited by a car with 21-inch wheels only to find it costs a fortune for tyres and it simply wasn’t worth it.
Depreciation
A big factor when buying a car outright is depreciation. If you buy a new car the value of that car will drop rapidly after your initial purchase. This is unavoidable in all but the most high-end sports cars and is a fact of life when buying a car.
Re-Sale
When you buy a car, you are also able to sell it if you want too. This can be really useful for some people and a pain for others. If you choose a car well and look after it, you may find you can recoup a good amount of your purchase money when it’s time to move it along. Selling a car can be time consuming and stressful. But, having a car you own can also be useful as part exchange for a newer car.
Looking After the Car
As mentioned above, when you own the car, you can treat it how you like. It may seem a bit odd to say but you could treat it badly if you wanted too. You may be someone who tends to bump into posts and parking bollards a lot. You may always end up scuffing your alloy wheels and you may spill food and drink a lot in your car. If so, owning a car may be a wise choice because you won’t have to pay to get any of these things fixed if you don’t want too.
Mileage
When you buy a car, you do not have a limited mileage. This means you can drive it as much as you like. You can drive to the Alps if you want without worrying about using up your mileage allowance.
Track Days
This is a bit niche but if you are into performance cars you may be tempted with a track day. You certainly can’t do this with lease cars so buying maybe the best choice. Please remember to check your insurance cover before taking your car to any kind of event from club racing, hill climbs and trials to open track days.
Pros and Cons of buying a car made simple
Pros
- Unlimited mileage
- The car is yours to use as you want
- You can sell and change at any time
- No monthly costs apart from running costs
Cons
- You have to pay for all running costs
- It is not as simple to change a car as you need to sell yours first
- You take on the depreciation
- You may choose an older car and breakdowns are more of a worry
Leasing a Car
Leasing a car couldn’t be more different to buying a car outright. The entire process is different, and it has many benefits as well as some negative points.
How Does Leasing a Car Work
Essentially you contact a leasing company. You look at the deals on offer or speak to a salesperson about your requirements. They will put together a deal for you based on what you want and what you are able to afford in terms of an initial deposit and monthly payments. The deal can include a range of things like servicing packages, roadside cover and more. You will also have a chance to choose your trim and spec levels. You may get options to add extra entertainment options or seat materials, powered seats, heated steering wheels and so much more.
Be aware, adding these can quickly increase the monthly cost of the lease. You will need to have a credit check and depending on the results the deal may change a little or you may not able eligible.
Once you have it all agreed you will have to wait for your car to arrive. This bit can be a surprise and can take a few months depending on your choice. When thinking about leasing it is important to plan ahead, if you need a car quickly you may need to keep an old car or buy a cheap “run around” until your new car arrives.
Once the agreed lease period ends you have to return the car. You do not get your deposit back. Essentially you are hiring the car so at the end you have nothing to show for it. However, you have driven a nice new car for 3 years without many of the usual running costs or any risk of depreciation. It is worth taking a moment to understand much of the lease cost is to pay for the depreciation on behalf of the company that owns the car. At the end of your lease, they will simply sell the car on for a small profit and whatever money they charged on your monthly bill as profit.
Running Costs
Depending on the deal you have chosen you may not need to pay any running costs at all. In most cases servicing, repairs and tax are included. New cars do not need an MOT for 3 years and most lease deals are the same time frame so you may never need to think about an MOT at all.
Look After Your Lease Car
The one really big thing about leasing is that you must look after the car, or you could incur extra costs. If you try to return a car with kerbed wheels and dents all over it the lease company will bill you for it and often this is more expensive than getting it repaired yourself. While some deals include repair work, they often don’t include body work or wheels.
Mileage
ALL lease deals come with some kind of mileage limit. This means you have to agree your annual or total period milage and stick to it. If you go over, you will be charged per mile. These costs vary depending on the make and model of the car, the agreed mileage allowance and the finance provider. You could expect to pay anything from a few pence per mile to 30p or more.
Pros and Cons of Leasing a car Made Simple
Pros
- Lovely new car every 3 years
- Minimal running costs
- Stress free motoring with new cars
Cons
- Tied into monthly payments regardless of a change in circumstance
- Being careful not to damage the car
- Nothing to sell or recoup any costs at the end of the agreement
- Limited mileage and usage
Is it better to buy or lease a car?
Well, sadly there is no simple answer to this question. For many people it is much better to buy outright. They can then own the car and look after it for years without any extra monthly costs or worries about keeping it damage free. However, for people that love a new car leasing can often mean they get a car they could not otherwise afford.
Cheaper Cars – Buying may be a better option
When it comes to small cheaper cars the total paid over the lease period can often come close to the initial sale price. In these cases, it may well be more cost effective to buy outright
Expensive Cars – Leasing Can be Better
When it comes to more expensive cars leasing can often be a better choice. There may be some great deals and the total spend over 3 years can be quite a bit cheaper than the full sale price.
It is so important to do your research and find the right choice for you. Consider your financial position now and in the coming months. Think about your usage and requirements and the sort of car you may be looking for. Leasing is a big commitment but can be a fantastic way to own a car. Car Guide are actually launching a new tool to help you decide how to buy your next car. It will allow you to directly compare lease deals with buying outright so you can get the deal that’s right for you
Frequently Asked Questions
Pros
- Unlimited mileage
- The car is yours to use as you want
- You can sell and change at any time
- No monthly costs apart from running costs
Cons
- You have to pay for all running costs
- It is not as simple to change a car as you need to sell yours first
- You take on the depreciation
- You may choose an older car and breakdowns are more of a worry
Pros
- Lovely new car every 3 years
- Minimal running costs
- Stress free motoring with new cars
Cons
- Tied into monthly payments regardless of a change in circumstance
- Being careful not to damage the car
- Nothing to sell or recoup any costs at the end of the agreement
- Limited mileage and usage
