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Monday, July 21, 2014

Should you buy with cash or lease your car?

By Matthew Hobbs

Your car is one of the biggest purchases you'll make, perhaps even second only to your home, and therefore it's essential to get the right make and model. However, before you start visiting the showrooms and booking test drives, it's essential to think about how you are going to pay for it, and what your budget is going to be. It could be a good time to buy, with car prices rising below inflation, meaning you could get more for your money, so you could look into buying or leasing a new vehicle. Here are a few of the advantages and disadvantages of paying up front or taking your car out on a leasing agreement so that you can decide what's right for you.
Rental car
Leasing agreements

Essentially, when you lease a car it's a form of long term rental, and some contracts have a certain mileage allowance. This means that as well as finding the right car for you, it's also essential that you find the right agreement to suit your lifestyle. Dealers will often have special offers, but it's essential to read the fine print. You should look at:

  • The initial payment or deposit
  • Monthly payments and whether they increase over time
  • Whether you can pay a lump sum at the end to own the car
  • How a high value car will affect your insurance premiums

Doing the maths

The best way to work out whether you'd be better off with a lease is to look at your usage and the value of the kind of car you will be leasing. Work out the cost of the deposit plus the monthly payments for the leasing term, and this will show you how much the car has cost to own in this time, minus fuel, tax, insurance and the usual running costs. To calculate how much the car would cost you in this period if you buy it outright, then you could look at the depreciation during these months, as this will essentially be how much the car has cost you. New and expensive cars can depreciate in value rather quickly, sometimes by as much as 40 percent, so do your research before you choose the make and model, and you can then decide whether leasing comes out in your favour. 

20 pound notes

Buying with cash

If you have the cash to buy a car outright then it can be tempting to empty your savings. If you use your car for a long commute or are generally a high mileage user then buying outright can sometimes make sense, as it means you're not locked into a contract. However, it can sometimes work out more expensive to own a car this way, and if you want to change your car every few years then you may lose out with the dreaded deprecation.

Those who decide to buy in cash will often find that dealers can be a lot more flexible with the price, and therefore they should do plenty of shopping around to see what offers are on. You'll often find deals such as free insurance, cash back, or other specials, but it's important not to get too sucked in by these offers, as they are often a way of distracting you from higher prices or worse deals.

Used cars

If you have the cash to buy outright then a used car might be an option for you. There are many sellers who put cars that are just a couple of years old, and you can haggle to get the best deal for your money. This can help you to get a great deal on a car that hasn't been used much, and this will help you avoid the major depreciation that happens at the start of a car's life.

It's essential to get the best value when you are looking for a new car, and this can mean choosing between buying or leasing. The best path for you will depend on what you want to buy, what your priorities are, and how much you will use your car, so make sure you do price comparisons and take your time to find the right vehicle.

About the author: Matthew Hobbs writes on a freelance basis for Leasing Options car leasing company, one of the most reliable providers of vehicles for rent in the UK. They partner with more than 30 different manufacturers to bring a wide selection to their clients.


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