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When you’re ready to buy a new car, one of the first financial decisions you’ll make is whether to finance or lease it. Now, whereas both options let you drive away in a shiny new car, in terms of ownership, payment, and long-term costs, there’s distinct differences between the two. Understanding these can help you to decide which option suits your budget, lifestyle and driving habits.
We break down the differences of car financing vs. car leasing, from descriptions of each to the pros and cons of each. So if you’re interested in learning the best way to finance your new car, keep reading below.
Buying a car on finance is basically an agreement between you (the buyer) and the finance lender. This agreement allows you to pay for the car over an agreed period, with interest payable on the loan balance, unless you’re lucky enough to get a 0% APR deal. Once the loan period has expired, you own the car outright.
There are different types of finance agreements available to UK consumers. Roughly speaking, these are split into three categories, with an additional option being car leasing, which we explain below.
Interested in learning how GroupM53 can help you with car financing in Ellesmere Port or the Wirral? Contact us today.
One of the more popular ways to finance a car, a personal loan, is when people borrow a fixed amount from either a bank or building society to pay for the car. You own the car from the moment you buy it. You’re then responsible for paying the loan back (with any interest) to the lender over an agreed period.
The amount of interest varies from lender to lender and usually depends on the duration of the loan, your credit score, and personal circumstances. Personal loans are a good option for people who don’t intend to routinely change their cars too often.
A PCP agreement involves buyers paying a deposit (typically 10%) and then agreeing to pay a monthly payment towards the value of the car. During the contract, the car belongs to the finance company and any payments you make cover the depreciation.
This finance is ideal for anyone who’d like flexibility at the end of any finance agreement and who changes their cars regularly. At the end of the contract, you have three options:
Like PCP (personal contract purchase), hire purchase (HP) is where you buy the car in instalments. Full ownership of the car is completed once the final payment has been made.
Buyers pay a deposit and agree to fixed monthly payments, with typical payments varying from 2-5 years, depending on the agreement. The HP company legally owns the vehicle until the final payment is made.
Also known as Personal Contract Hire (PCH) car leasing is, basically, a long-term car rental, typically, between 12-48 months. You don’t own the car and there’s no option to buy once the lease contract has expired.
However, you have the option of upgrading the car to a newer model or different manufacturer, providing that this is in-line with the terms and conditions of the lease. The payments you make are like a hire fee. They cover the car’s depreciation and your annual road tax.
When you lease a car, you agree to an annual mileage limit. You can choose a vehicle with a range of specifications and colours, and flexible payment options tailored to your budget and circumstances.
Interested in how GroupM53 can help you with car leasing a Ford, OMODA or JAECOO? Contact us today.
The biggest difference between car financing and car leasing is ownership. Finance a car and you own the car, either outright or when you make the final payment. Lease a car and you don’t.
When it comes to the practical details, car financing and car leasing may sound similar (you’re making a monthly payment for the privilege of driving a car), yet there are subtle, important key differences that potential buyers should be aware of. We’ve outlined these briefly below:
Deciding between car financing vs. car leasing is a big decision. One that shouldn’t be taken lightly. The decision can affect your monthly household budget to your driving habits – you may have to rethink that summer road trip to Cornwall!
So, for anyone who’s unsure of whether to finance or lease a car, we’ve put together some basic pros and cons of each option.
Below are the key advantages and disadvantages of financing a car. Now, some of these we’ve already mentioned previously, but in the interest of keeping things easy-to-digest, we’ve outlined them straightforwardly below.
Spread the cost: instead of a large upfront payment, you can make manageable monthly instalments.
Build credit: timely payments can positively impact your credit score, especially if you don't have other instalment loans.
Access to better vehicles: financing allows you to afford a car that might not be in your budget otherwise.
Flexibility: some financing options offer flexibility with contract terms and the ability to upgrade or purchase the car at the end.
No large upfront deposit: depending on the individual finance option you choose, you might not be required to pay a substantial amount upfront when financing a new car.
Long-term value: once the duration of the agreement has expired, you own the car, meaning you have an asset, regardless of depreciation.
Below are the disadvantages of financing a car. Be sure to read each, so you can feel confident that you are making the best choice for you.
Depreciation: the value of the car decreases over time, especially in the early years of ownership.
Mileage limits: finance agreements have limits on the number of miles you can drive per year.
Potential for early termination fees: breaking the contract early might incur penalties.
Higher overall cost: interest charges will increase the total cost of the car in the long-term.
Potential for repossession: if you fail to make payments, the lender can repossess the vehicle.
Impact on credit score: any missed payments can negatively impact your credit score.
Tied to a contract: you're obligated to make payments for the duration of the agreement.
Below are the key advantages of leasing a car. We’ve outlined them as straightforwardly as possible to help you to make an informed decision.
Lower monthly payments: leasing generally results in lower monthly payments compared to financing a car purchase.
Drive the latest models every few years: leasing allows you to change your cat to a newer model with updated technology and innovation at the end of the lease term.
Minimal maintenance costs: leasing vehicles are often new and covered under the manufacturer's warranty, reducing maintenance expenses.
Simple to budget for: with fixed monthly payments leasing cars makes budgeting for the car simple and straightforward.
You don’t need to be concerned about depreciation: when leasing, you’re not responsible for the vehicle's resale value and therefore you don’t need to be overly concerned about depreciation.
Below are the disadvantages of leasing a car. Reading each one carefully helps you to make up your mind about whether to lease a car.
You never own the car: at the end of the lease, you return the car, so you won’t have an asset of any sort, despite making monthly payments for the car.
Mileage restrictions: leases typically come with mileage limits, and exceeding those limits can result in significant charges.
Ownership wear and tear: you're responsible for any damage beyond normal wear and tear, which can lead to unexpected expenses at the end of the lease.
Early termination penalties: Breaking a lease agreement early can result in hefty financial penalties.
Limited Customization: lease agreements restrict or prohibit modifications to the car.
Credit Requirements: leasing a car often requires a good credit score.
So, there you have it. The car financing vs. car leasing explained. Choosing between car financing and leasing depends on your driving habits, financial goals, and whether you want to own the vehicle outright or simply enjoy the latest models with minimal hassle.
Both options offer their own set of advantages — and understanding the difference is the first step to making the right decision.
If you’re still not sure and would like further advice from the experts, the team at GroupM53 is here to help. As one of the most highly trusted dealerships in Ellesmere Port, Wirral and Chester, we can guide you through your options and help match you with the ideal finance or lease plan to suit your needs and budget. Contact us today.