A recent article in a UK newspaper claimed 1.6 million Brits currently lease their car – but how many actually understand what they’re doing?
When I first leased a car, I had no idea how it worked. I assumed a lease was something you got on a retail building and not a car!
Don’t let the complexity scare you though. Leasing can be a practical and affordable form of car finance if you take the time to get to know how it works. In this blog, I’ll run you through what leasing is, how it works and a couple different forms of leasing finance.
What is a lease?
To understand the difference between leasing and buying, you need to have a look at what you’re actually paying for in a lease.
When you buy a car outright, your payment covers the full value that the vehicle is worth. Once you’ve paid the full price (either immediately or over time), you become the legal owner of the car.
With leasing, you essentially ‘rent’ a car for a given period of time and return it at the end of your contract. Unlike buying a car, you’re never the legal owner of the car, although you are usually its registered keeper.
Why lease? Because depreciation hurts
Leasing is an attractive option for a lot of people because it eliminates one of the major problems that comes with owning a car – the cost of depreciation (depreciation is how quickly a car loses value).
According to the AA, new cars can lose up to 10% of their value the moment you drive them off the forecourt. Worse, the worst of the bunch can lose up to 60% of their value in the first year of ownership!
With these motors, if you’re planning on selling your car after a few years, you’re in for a shock when you check what it’s worth.
Contract Hire
Contract hire (more commonly known as leasing) is an arrangement where someone ‘rents’ a new car for a set period of time from a dealer. During the contract, the individual pays just enough to pay off the car’s depreciation. (Plus a little profit for the dealer, of course.) At the end of the contract, the individual returns the car to the dealer and they both go their separate ways.
With leasing deals, you aren’t the legal owner of the car but you are the registered keeper. That means you have get the car regularly serviced and keep it in a good condition.
The best thing about leasing compared to other finance options is the monthly payments, which tend to be significantly lower. That’s because, as I already mentioned, you’re only paying off the depreciation. You can also trade your car in every few years for a brand new model!
Tom Butcher worked behind the scenes in print journalism for years until he discovered the wonders of the web. He writes for several publications, covering the finance, automotive and tech sectors. At the moment, he is helping LeaseFetcher teach the world about car leasing.
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