Car Leasing – Top 3 Questions

1.    What is car leasing?
In its most simple definition, a car ‘lessee’ pays a monthly sum to take possession of a contract car for a period of between typically two to four years. At the end of the term the lessee gives the car back to the dealer/owner and takes a new lease or may opt to buy the car at its value at that point.
2.    Why does leasing often get a ‘bigger bounce for your buck’?
The amount that a lessee pays over the period of a lease is typically equal to the amount that the contract car (ie; the leased car) will depreciate over that period. According to the AA, after 3 years the average car will have lost around 60% of its value.  However, some cars (Audi, Mini or BMW) depreciate much less than others (Ford) and therefore, it may actually be close to the same price to lease an Audi as it is a Ford. 
A rough example that excludes VAT; a £19,000 Ford might have a forecast depreciation of 50% over 3 years amounting to c. £9,500. This drives the price of the leasing contract and based on depreciation only, over 36 months the Ford might cost approximately £263 a month. However, for an Audi A4 that has an original value of £29,000 it might only depreciate by 30% across that period and this would mean (based on depreciation only) the monthly price would be £241 per month for a more up market vehicle.
3.    Which Car Finance Option is best - leasing or buying?
This is a subjective question. First you must ask yourself:
(iii)    What benefits will you get for owning the car?  This might include:
a.     owning the car for as long as you like;
b.    it allows you to drive an unlimited amount of miles.
(iv)    What benefits will you obtain from leasing a car?
a.    this option most often means lower monthly payments)for driving high quality cars (compared to buying);
b.    smaller deposit/upfront payment – provided you have a good credit record this will typically be 3 months as opposed to 10 or 20% for a loan.
c.    Flexibility – although it will increase your payment you can extend the mileage if you like and you can extend the period (which will decrease your monthly payment) and you can opt to buy the car at the end.