So, you want to buy a new car but don’t want to pay for a new or used vehicle outright. You may not want to own the car at all - what options do you have if this is the case? You’ll be glad to know that buying a car comes with many different financing options which means that there is something to suit every budget. Two of these options are financing a car or leasing it. In this blog, we break down the difference between the two and weigh up the benefits of each. Ultimately, the choice is up to you and depends heavily on your budget.
What is the difference between financing and leasing a car?
Leasing (such as Personal Contract Hire (PCH)) is basically renting a car for a set period of time, usually two to five years. Owning a car this way gives you access to a wide range of vehicles and the latest models without the worry of depreciation or a balloon payment when you come to the end of the lease. Once the leasing term comes to an end, you hand the keys and the car back to the dealership and you’re free to choose another brand new car to lease.
When you lease a car, you’ll be limited to an annual mileage but you’ll have a choice of many different colours and specifications. When leasing, you’ll be offered a variety of finance options as well - meaning you can choose a finance plan that’s tailored to your budget. It works by paying an initial deposit and then paying a fixed monthly fee (this includes annual road tax) for the length of the contract. Some vehicles may come with a maintenance package which may cover your servicing, tyre replacements and other general maintenance.
Financing a car means you buy a car, but you pay for it in monthly increments rather than one lump sum. Financing a car usually means you pay an initial deposit and they pay a fixed sum every month until you have paid for the vehicle in full. Some agreements allow you different things - for example, one agreement may let you buy the car fully at the end of the term using one final payment (known as a balloon payment) and another agreement may allow you to give the car back to the dealership.
Financing comes in a few options, but the most popular options are Hire Purchase (HP) or Personal Contract Purchase (PCP). In most cases, you will need to pay interest on the car you are financing unless you’ve chosen a 0% APR contract. If you decide to buy a car on finance, it will usually come with a warranty, but you will be responsible for maintenance, tax, etc. In some cases, you may be given a mileage limit until the car is paid off in full.
Benefits financing and leasing a car
However you decide to buy a car, it all depends on how much you want to spend and how you want to spend it. If you’re limited by budget, one option may be better than the other. It’s important that you research the best option for you and that you are able to make the repayments to the ‘lender’. Some benefits of each option include:
Benefits of financing a car
- The ownership of the car is yours - you own the car and it is in your name, not the dealerships.
- You get your deposit back - you can get your deposit back with financing - when leasing, the deposit becomes part of the monthly payment and acts as a reduction of the monthly payments.
- You have more flexibility - when buying a car on finance, there is a lot more flexibility to buy any car you would like than you would have with cash. That’s because some finance options have various benefits, such as giving the car back at the end, part-exchanging it for another vehicle or keeping it. This means you could change your car more frequently.
- There’s no mileage limit - some finance contracts don’t have a mileage limit, so you can drive the car anywhere and everywhere without the risk of extra fees for exceeding the limit.
- You get what you pay for - a finance agreement means you know exactly what you’ll be paying for - your payments are fixed for however long you want and there are no surprise fees.
- You don’t need perfect credit - if you were to apply for a personal loan through the bank, you could get turned down. It is easier to get accepted for a car finance loan.
- You can build up your credit score - financing a car is the perfect way to build up your credit score, particularly if you have a bad one. Keeping up with your monthly payments proves to lenders that you are able to pay the loan back.
- It’s more secure - if you buy a car with finance, it comes with a lot more security - if you bought the car with your own savings, you’ll be responsible for the maintenance. Through finance, there’s an option to add on maintenance so you needn’t worry about servicing, MOTs and tyres.
Benefits of leasing a car
- Low monthly payments - leasing means that you are only paying the difference between the purchase price and what the value of the car is expected to be once the lease is over. This is an interest-free approach to car buying.
- The deposit is lower - some leasing agreements only require you to pay the first monthly rental payment, which can be significantly less than a deposit through a finance option.
- Many maintenance options come as standard - when you lease a car, road tax, warranties, breakdown cover, MOTs and servicing are included in the agreement. This means you don’t need to worry about costly payments should something happen to your car whilst you are leasing it.
- You can include insurance - as insurance is a legal requirement, it’s important that you insure your car before you drive it. Leasing means you can include the insurance as part of the agreement - there is, of course, an option to buy the insurance yourself and it must be fully comprehensive.
- The cost of the lease is fixed - leasing allows you to agree to your monthly payment upfront. This payment will stay the same throughout your leasing term, so there’s no risk of sudden increases in payment.
- You don’t need to worry about depreciation - depreciation is a normal part of car ownership and it’s always a good idea to check how much your new car may depreciate by so that you’re not in for a shock when you come to sell. When you lease a car, this risk is taken on by the finance company, so you can return the vehicle at the end of the lease and not worry.
- It’s not a long-term commitment - you can usually lease a car between two and four years, so you have the opportunity to get a new car after this period ends. If you are someone who enjoys a new car every so often, this might be the way forward.
Take a look at the finance options available today
Cars are expensive no matter which way you look at it and everyone should be able to have access to the car of their dreams. At Swansway, we have a range of finance options available for any budget. Buying a new car is an exciting time and shouldn’t be a stressful experience - that’s why we’ve tailored each of our finance options to help you get the very best out of your car. Take a look at our finance offers available for new car purchases today. If you’re unsure what you're looking for or would like more information about one of the vehicles you see on our website, don’t hesitate to get in touch with one of our team and we’d be happy to help you.