First, I would like to say that I am not an expert, because I have only had three cars in my life, and bought my first car when I was 29. Before that, I just made do with public transportation and rentals. For me, having a car in a big city was too much money spent on insurance, parking, maintenance.. to justify the buy.
But now that I have moved to more remote locations, having a car is a must. Before making a decision to buy my car, I crunched the numbers.
Companies like All Car Leasing make it super easy these days to lease a vehicle. You just pick a make and model, and you are presented with several options. For the type of car I wanted, such as a Toyota Rav4 or a Hyundai Santa Fe, I would be looking at monthly payments of around £350.
The business price is lower than the personal price, because it doesn’t include the VAT. The price goes up a bit if you want to lease the car for 24 or 36 months, and it is at its lowest if you lease for 48 months.
There is also a mileage limit, but the price only goes up £30 a month or so to increase your mileage from 10,000 to 20,000 miles per year.
The obvious advantage of leasing is the hassle-free process. You just come in, and pay a monthly rent like you would for a flat or an office. Everything is included, even tax, and you get a brand new vehicle ready to go. If you rent for three years, you don’t even have to worry about MOTing your vehicle.
You know exactly what your payment will be every month, and can include maintenance as well.
Once you are done with your lease, you can take the car back and don’t need to put it on the market to sell.
My first car, I lost a lot of money on because I moved and had to sell it quickly. With leasing, you give back the keys and you are done.
Another advantage I see as an investor, is that it frees up cash from my bank account. Instead of dropping £20,000+ on a car, I can keep all of it, invest it, make it grow, and pay part of the lease with the dividends from my investment.
On the other hand, you do pay a higher price for all that convenience. Monthly leasing should be more expensive over the long run. So you need to crunch the numbers, if you can afford a car cash, to find out how much you would save monthly by keeping your nest egg intact (interest from your savings account, returns on the market…), and what the true cost of leasing a vehicle would be.
You need to account for maintenance and upkeep of the vehicle as well in the case of buying.
Overall, I think leasing makes sense if your life changes quickly, for example you are young and may need a bigger vehicle once you have kids, and don’t want to go through having to sell the old one and look for a new one. It also makes sense if you are just not the kind of person who enjoys doing maintenance and repairs on your car. It is much easier to have a contract and someone ready to do it for you.