Leasing a Car – Planning Your Budget
In recent years, the rise of alternative finance schemes for car finance have grown a lot in popularity. Aside from the option of buying a car outright, there are now plenty of other ways to finance such as leasing a vehicle, or going for a hire purchase plan. This allows you to spread out the monthly cost, whilst still being able to drive a new car.
So, what should you take into account in your family’s budget plan if you’re not paying a lump sum? We’ll take a look in this article!
Unlike buying a car outright with a lump sum, what typically happens with car leasing is that a much lower amount is paid per month for the duration of the lease (leases can be anywhere from £250 a month to £999 or more for premium, high-end models). You will however need to make sure your credit history and job/business security can sustain the payments over the duration of the lease period.
Compared to buying a car outright, you won’t have to factor in depreciation when leasing a car (as it’s usually factored into the monthly cost) which saves you the stress of worrying about losing value on the vehicle, which can be up to £12,000 on a £25,000 car after three years. It is worth bearing in mind though that vehicles which tend to lose their value faster will generally have higher payments, as the depreciation is taken on by the leasing company. This may affect whether you decide to buy or lease, which will depend on your own objectives for the vehicle and how long you need it for.
If you happen to be a sole trader or in a business partnership, then it may be possible to reclaim up to 50% of the VAT value of a lease vehicle, if it’s used exclusively for business (larger companies may otherwise have to pay benefit in kind tax for their employees), which is an additional positive factor to consider when deciding on your lease car budget. Most leasing companies should be upfront about whether their prices include VAT or not, but it’s a good idea to double check to avoid being caught out.
The mileage allowance
This is agreed at the beginning of the contract, with typical figures being anywhere between 10,000 and 15,000 miles a year. Obviously you’ll be paying more per month for a higher mileage allowance, so make sure that you work out how many miles you’re likely to be doing over a given 12-month period to avoid being overcharged.
If you own your own car (especially if you intend to keep if for a while!) the odd dent or scratch doesn’t really matter that much. With leasing though it’s a different story, as you’ll be liable for any damage the vehicle incurs whilst you have it, and if the car isn’t in a good condition when you hand it back you might end up paying extra charges. As long as you’re a careful driver though, there’s nothing to worry about!
Check what else is included
Plenty of lease providers will add lots of extras into your deal, which makes the whole process easier. Often all you’ll need to worry about is fuel and insurance, as maintenance, breakdown cover, road tax and more tends to be dealt with by the leasing company.