Should I Buy or Lease a Car in the UK?

So, you need a new set of wheels, huh? Well, you've got a whole lot of decisions to make. Big or small? Green or mean? Fast and fun or sensible and efficient?

But before you decide what you want, you've got to make one super important decision:

Should you buy or lease?

It's this question that we're going to look at today. (For everything else, go check out the rest of our blog or play around with our car finder!)

Let's get started.

How long do you want your car for?

This is probably the biggest factor in your decision. Do you want a car for a couple of years or do you want it for a couple of decades?

If you like updating your car every two or three years, leasing is most definitely for you. You pay an initial rental and a fixed price every month then hand it back when your deal ends in two, three or four years.

Then you choose a new car and arrange a new lease.

If, however, you want to keep one car for ten, twenty or thirty years, leasing doesn't really work. Some leasing brokers will agree to sell you the car at the end of your leasing deal but you can't rely on that being an option.

Plus, leasing and then buying will almost certainly cost you more than just buying the car at the start.

Have you checked the depreciation?

Some cars lose money faster than a retired footballer with the world’s next big business idea. And if you’re considering buying your next car, it’s essential that you think about the resale value a couple years down the line.

Let’s say you walk into a Renault dealership and spot the all-electric Renault Zoe. It looks great, helps the planet and is surprisingly fun to drive.

Now, the Zoe isn’t exactly a cheap car. A decent model will cost you upwards of £25,000.

If you pick up a higher-spec Renault Zoe I-Dynamique Nav Quick Charge for £29,020, how much do you think it’ll be worth after three years?

Fifteen grand?

Nope.

Ten grand?

Nope.

After three years, your Zoe is worth just £5,100 — a depreciation of 82.4%! (Depreciation statistics from What Car.)

That’s absolutely crazy! Especially since the rough rule of thumb is that a car loses just half its value every three years.

If you’re planning on driving your car for a few years then shifting it on, you have to look at the depreciation.

Seriously, look at the depreciation!

The difference between one of the fastest depreciation car (Renault Zoe — losing 82.4% of its value in three years) and one of the slowest depreciating car (Lotus Elise — losing 64.1 percent of its value in three years) is immense.

Check out our table below to see five of the fastest depreciators last year.

But it's not just car buyers that have to think about depreciation. You see, the finance companies behind leasing brokers calculate their prices based on how much a car depreciates over the leasing period.

If a car depreciates a lot, it'll be more expensive to lease and if it doesn't depreciate it'll be cheap to lease.

Check out the table below where we compare the Mini Cooper (slow depreciation) to the Alfa Romeo Mito (fast depreciation). All prices are for personal contract hire deals over 48-months with a nine-month initial rental and 5,000 miles.

As you can see, the Alfa costs a fair bit more to lease despite costing a fair whack less to buy outright.

Yes, it’s strange but it’s just a result of how leasing pricing works.

Leasers don't really have to pay that much attention to depreciation. With leasing, the car belongs to the finance company and it's their burden to bear once the leasing deal expires. If used car prices tank and your car is suddenly worth ten grand less than it did a week ago, it's the finance company that has to absorb the loss and not you.

Are you a careful driver?

Look, I get that this sounds a bit patronising but are you a careful driver? Come on, be honest.

There’s a reason for me asking, I’m not just being nosy.

When you own a car, you can drive it into trees, whack it off bollards and scrape your alloys along the curb.

And when it’s your car, no one can say a thing. And, as long as it’s not affecting the safety of the car, you can ignore all the dings, dents and scrapes you want.

However, when you’re leasing a car, things are a little different.

With a leased car, the finance company calculates your monthly payments based on what they can sell the car for at the end of the deal.

If you cause damage that reduces that car's value, someone (read: you) has to make up the difference.

If you're a damage magnet and pick up a brand new scratch every time you go to a car park, leasing can get expensive quickly as everything has to be repaired and brought back to a saleable condition.

 

How’s your credit score?

Most car buyers don’t have tens of thousand pounds lying around to drop on a new car. If you’re one of those people, you’ll need to look at finance options like personal loans, hire purchase and personal contract purchase.

When you're dealing with finance, it's those with the strongest credit scores that have the most bargaining power and receive the best borrowing rates. And those with the weakest credit scores have the least bargaining power and receive the worst rates.

Try and negotiate for a car loan after missing a couple of mortgage payments and you’ll receive an interest rate that’d make Wonga blush.

The good news is that leasing depends less on credit scores.

Now, I’m not saying leasing brokers don’t care about credit scores (they do) but they’re often more likely to approve folk with poor credit than a bank is to issue a loan.

What’s your estimated mileage?

The average Joe or Josephine does around about 650 miles a month or 8,000 miles a year.

However, long-haul motorists — think couriers, regional managers, sales reps and so on — can do four, five or six times that.

While cars are designed to do long distances, they all have their breaking point. Once you hit 100,000 miles, you tend to start to seeing parts failing and repair bills growing.

If you’ve bought your car, you’ll have to pay for all the repairs once the warranty runs out.

With leasing, however, the manufacturer's warranty usually covers the entire leasing period. (Unless you take out a four year deal, in which case the last year is often outwith the warranty.)

If something breaks in a leased car and you're still covered by your warranty, you call your leasing broker and tell them to get it fixed.

So, if you spend half your day on the road, you might be better off leasing your car rather than buying it outright.

 

Made up your mind yet?

So, there you have it. Five things to think about to help you pick between buying and leasing a car. I get that it's a lot to digest, though, so you might not have made your mind up quite yet.

Here's a super condensed list summarising everything in the article. Hopefully, it'll help you make that final decision.

Leasing

  • Change your car every few years
  • No worries about depreciation
  • Extra charges can mount up
  • Credit checks are less vigorous
  • Can be efficient for high mileage drivers

Buying

  • Keep your car for as long as you want
  • Depreciation can hurt if you resell quickly
  • You decide whether to repair scrapes and dents
  • Finance depends on your credit rating
  • Can be costly for mileage drivers