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Is it cheaper to Lease or Buy a car?

is it cheaper to lease or buy a car

With car leasing becoming more and more popular in the UK many people are asking if it is, in fact, cheaper to go for the lease option or to buy a car outright. Obviously, there are a lot of variables when it comes to both choices and these can have a huge effect on the answer whether it is cheaper to lease or buy a car.

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What is Leasing?

When it comes to leasing it is important to first define what leasing is. For the purposes of this article, we are talking about PCH (Personal Contract Hire). This is where you essentially hire the car for an agreed period. You pay a deposit and monthly cost and then return the car at the end of the agreement. You do not own the car at any point, you do not usual have an option to buy and you do not get any deposit back at the end.

This is not to be confused with PCP (Personal Contract Purchasing) where you have an option to pay of a final amount and own the car at the end of the agreement.

Depreciation

The concept of depreciation is absolutely key to any discussion about the best way to buy a car. Generally, all cars start to lose value the moment they are “driven off the forecourt”. What normally happens these days is the cars are delivered to your home, but the start of ownership is often referred to using the forecourt idea. There are, of course, cars that do not deprecate but these are rare. For example, the Bugatti EB110 GT was 280,000 Euros new and one sold in 2019 for around 2.03 million. The types of cars that go up in value after purchase are not the sort most people buy so the spectre of depreciation is real and effects pretty much everyone buying a new car.

Why Does Depreciation Matter?

When looking at whether leasing is cheaper than buying depreciation is very important. If you remove running costs it is the primary factor in working out which is cheaper. From the lease companies point of view they want to make money from your monthly payments and selling that car at the end of the lease agreement. So, they calculate the costs to you based on how much the value of the car will drop over the lease period as well as their own profit margins on admin etc. When buying a car outright yourself and not choosing the lease option you shoulder the drop in value. This may not matter if you plan on keeping the car for many years but if you plan on part exchanging it for something new in 3 years you may feel the drop much more acutely.

Lease Vs Buying Examples

Ford Fiesta list price – from £16,385

Sample lease deal – 48 months at £174

Initial payment of £1566

Total Lease Cost – £9918

You would be paying 61% of the total cost in 4 years.

Looking at 3–4-year-old cars for sale the average is around £9000 so that’s a loss of just over £6000 in 4 years in depreciation. If you take this example, it is far cheaper to buy the car outright than to spend nearly £10,000 on leasing it. You could run the car for 4 years on 5-10,000 miles a year and still have something to sell for £8000 or more.

Audi A4 Saloon list price – from £29,505

Sample lease deal – 48 months at £277

Initial payment of £2493

Total Lease Cost – £15,741

You would be paying 53% of the total cost in 4 years.

Some used examples range from £15,000 to £20,000 which would mean a loss of around £12,000 on average. So once again, leasing the car seems to be far more expensive than bearing the cost of the depreciation.

Running Costs

This is where it can get tricky. Owning and running a car isn’t as simple as buying it and then selling it. In between those two points are lots of other costs. Many lease deals come with servicing, road tax and things like tyres all included.

An average service cost for a Ford Fiesta is listed as £169 and that would need to be done annually. You could also expect a set of tyres during a 3–4-year period and possibly brakes too. You could average out these costs to around £1000 for a similar period to a lease. On top of that road tax which could be as low as £20 per year. Even with this the Fiesta lease still seems to be costly.

For an Audi A4 servicing could be £200 and upwards. Tyres would be more expensive due to the larger wheels, brakes and other consumables will cost more and road tax could be around £300 per year. This would bring the cost of owning it outright very much in line with the lease cost.

The issue here is that getting exact figures and working out which is cheaper is actually very hard and full of variables. Trim levels, engine choices, congestion charges, road tax changes and more. Repairs that are covered under a warranty mean no added costs but if you buy outright and have to fix something outside of that warranty you could be looking at some heavy costs. How you drive may affect tyre wear and this could incur additional costs.

Is it cheaper to lease or buy a car?

The answer probably is – it is cheaper to buy a car. In the long run you will have an asset you can sell, and prices may be strong when and if you choose to do so. Of course, you also run the risk of prices falling. The emissions scandal is a great example of this. Certain brands lost a lot of their residual value because of that, and owners could not have foreseen that when buying a new car. People with leases could simply hand it back and only pay the agreed amount regardless of a change in value.

Buying a car outright is a big outlay though. Having £20,000 in the bank ready to spend on a car is not something everyone can do. If you chose to use a car loan, then factoring in the interest on the loan could add another £1000 or more to the ownership cost. For many people leasing is a very useful way of getting a new reliable and safe car. So, the additional cost in some cases is well worth paying.

It really depends on your situation and what you need from a car. Knowing your exact monthly costs for running a car can be very useful with leasing. However, other people find a monthly cost very stressful and buying a car outright means no large outgoings each month.

Compare and Check

Car Guide want to make sure you get the right car for you. Not only do we have an in-depth and great value car checker that shows you so much detail about a cars history and potential running costs but we are also about to launch a new tool to help you work out which way of buying a car is best for you. You will soon be able to compare by model and make and put leasing deals up against PCP and more to see what works for you.

It really depends on your situation and what you need from a car. Knowing your exact monthly costs for running a car can be very useful with leasing. However, other people find a monthly cost very stressful and buying a car outright means no large outgoings each month.

Do your research, look at all the deals, check running costs and used car costs for older models and make an assessment.

Frequently Asked Questions

The answer probably is – it is cheaper to buy a car. In the long run you will have an asset you can sell, and prices may be strong when and if you choose to do so. However, not everyone has £20,000 sat in their bank account, therefore leasing might be a better option. Find out more here.
You do not own the car at any point, you do not usual have an option to buy and you do not get any deposit back at the end. Find out more here.

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