Having a new car these days is no longer the preserve of the rich. Where once it was only the neighbourhoods high flying double glazing salesman or banker that would wow everyone with a brand new shiny car it is now commonplace for most of us normal folk to be able to consider a new car. Why? Well, its all thanks to leasing and personal contract purchasing. In the US almost everyone leases cars it is the default setting for car ownership and it is really starting to become truly popular over here too but there are some pitfalls and some simple ways to do it right and avoid spending more than you need too.
What Is Leasing and PCP?
Well, leasing is quite simply a long term hire option. You basically put down a deposit and then pay monthly for a set period of time like 3 years and at the end, you give the car back and get another one. Personal Contract Purchase or PCP is similar in all but the last bit. Instead of automatically giving it back you get the choice to buy the car outright and pay the remaining balance or to return it and start another contract. There is no right or wrong here, it is all about the best deal for you. PCP tends to be a little less expensive monthly because it is designed around a final “balloon” payment at the end. Leasing means you have a new car every few years and no concerns about buying one or selling one. But some people like to look towards ownership at the end and prefer PCP. There is a gamble that can be played where you final payment looks to be lower than the market value of the car as a used purchase. So some people pay the final payment, then sell the car privately and pocket the change. This can be risky though!
While this may not be critical in terms of how leasing works it is a really big point for anyone who uses a car like a normal person. By this, I mean having kids in the car most days, bikes, dogs, shopping etc. It also means maybe making a few parking errors and damaging a wheel when a 2-year-old is screaming they have dropped their toy in the back. Damaging a lease or PCP car is different from damaging a car you own because when you give it back you will be charged for the repair. Unlike many, a trusty used family car you can really just leave the dent or ding for the next owner. So the key advice when leasing is getting the damage repaired before returning the car. You can of course, just hand it back and just accept the bill for the repair but it is likely to be more than it would cost to do it yourself. When it comes to wheels you will find lots of places like www.wheelsrus.biz offer a quick and easy service and can get your damaged wheels back to brand new before returning the car. The same goes for dents and scratches with companies like https://www.brightondentrepairs.co.uk/ . When it comes to the interior things get a little harder to define because the contract will include fair wear and tear. What this means is really up to the lease company and it is hard to second guess but a few little scuffs and marks inside will generally be fine. If there are any larger bit of damage it is worth looking into getting some quotes!
The bottom line with damage is, get it done yourself before your lease finishes to save money.
This is a MASSIVELY important point! Gap insurance is designed to cover the difference between the value of the car and the amount you have paid at any point in the contract. For example, a car might be worth £40,000 when its new. You may have paid £3000 deposit and one month’s payment of £300. What happens if you have a crash and write the car off? Your insurance company will pay the market value, which, once a new car rolls of the forecourt is about 30-40% lower than the list price. So who pays the difference? Sadly it is you! So without gap insurance, you may end up paying 12 more monthly payments, 15 more or even 20 more until the balance has been covered and you would have no car to show for it. Gap insurance is a separate policy you take out that will pay out and cover the missing money leaving you to go off and start again if you wanted too. As the car gets older and you have paid off more and more the need for gap insurance falls and often after a couple of years most people stop the policy.
A lot of lease options come with full servicing deals. These can be a great way to save money, they are a little more each month but it means you don’t need to pay for any servicing. However, it is really important to check what the contract covers, it may not cover things like tyres and brakes so it may not be worth the money. Another important issue is to check how many services the car will need over the fixed term. If you are only leasing for 2 years you may only need one service and very little will need doing so it might be cheaper to pay for it yourself. Here is an example of a service package – https://www.selectcarleasing.co.uk/maintenance-packages.html
All contracts have an agreed limited mileage. This is not negotiable in most cases so if you do more miles than you agreed too you will be charged a lot of money. In some cases, it’s around 25p per mile which can really add up! Never try to save money by putting in a lower mileage as some people do with car insurance. It will not work out well! Be honest and give yourself some spare miles to use. You never know what life may throw at you over 2-4 years. You may have to do lots of long runs to visit an ill family member or for a new job you never thought you would take.
That New Car Smell
If you are careful, you shop around and you plan properly a lease car can be an amazing way to have an economic, safe and very shiny new car every few years. While you realise you are basically paying money for a car you never own you also have the freedom of….well never owning a car, taxing it, servicing it, selling it and the rest. Rush into a lease, or fail to organise gap cover, get the wrong mileage and ignore dents and you may find it quite a painful experience.
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