Cars are expensive, there’s no way around it. Between the price of the car and all the different running costs it’s a lot of money. But for a lot of people a car is just necessary. Many people turn to financing to spread this cost out, one of the options on the market is leasing a car.
Leasing a car is, in basic terms, renting a car long term. It’s similar to PCP financing but without a balloon payment at the end to buy the car. Like PCP at no point do you own the cars. When the contract is over you hand the car back. You might see it called PCH sometimes, this just stands for Personal Contract Hire. Leasing is beneficial for some people as it allows you to get the newest of cars for a cheaper monthly price than buying one outright.
Like PCP or any finance through dealerships, there’s a deposit of sorts to pay. For leasing it’s called an ‘initial payment’, and as you’d expect the bigger this initial payment the smaller your monthly payment will be.
What Does a Car Leasing Include?
The car leasing industry of Europe has outgrown private ownership, which was 53% in 2013, reduced to 42% in 2021. This massive change proves that people are moving towards renting a car on a long-term contract rather than owning one.
As the market size increases, you might also get the best deal while leasing a car. Let’s have a look at some factors a car leasing includes:
Long-Term Rental
Renting out a car on a short-term contract is not a pocket-friendly deal, think airport rentals or Hertz. Leasing is different in that it’s usually anywhere from 2 to 4 years, not 2 to 4 weeks.
The ‘initial payment’ we mentioned is usually a number of months lease paid upfront. So you’ll see deals described as the number of months required upfront plus the remaining monthly payments. Think ‘3+23’ or 6+35’, that would be 3 months upfront, plus another 23 months paid monthly etc.
Once the contract expires, you’ll have to hand over the car to its owner. The initial payment from the start of the lease won’t be returned either, this is why it’s not called a deposit.
Lower Payment Than Buying
Most car loans in Ireland are capped at 5 or 6 years. When you take out a loan to buy a new carm you have to fit the price of it into these 5 or 6 years. It can make the monthly payments unmanageable.
When you lease a new car, your monthly payments only cover a fraction of the true cost of the car. The Finance company or car dealership will sell the car after your lease agreement to make up the difference in price of the car. They’ll factor in depreciation of the car, what they think it will be worth at the end of the term and their own profit. All in all leasing a comparable car might come out to less than half the monthly cost of buying a new car on credit.
Similar to PCP Financing
Leasing a car is similar to PCP financing. However, the car dealer doesn’t give you the option to buy the vehicle at the end of the lease contract, through the ‘balloon payment’. When you lease a brand new car, you pay the monthly lease fee for the contract period, around 2-4 years. Then you hand the car back.
Leasing a car is beneficial if you have set a monthly car budget. You can quickly lease a new car and hand it back to the owner once the contract ends. After that, you can lease a new model or wait for the next big opportunity.
Similar to PCP, leasing is a quick way to try out new cars every 1-3 years. You can go for your favourite latest model and rent it out every month. It’s also cheaper than PCP because there’s less flexibility.
Display on Credit History
Leasing a car is considered a type of financing and a loan. It will show up on your credit history just like a loan and any missed payments will be captured there. You’re under the same obligation to make all your payments on time as you are with a bank loan.
It’s also harder to end your leasing contract early if you run into problems. With a loan you have the option of selling the car and repaying the loan early. With leasing you have to pay a break contract fee and hand the car back with nothing to show for it. So think carefully before agreeing to a lease deal.
Things to Consider While Leasing a Car
Although leasing a car has different benefits than owning one, you should consider a few things before finalising your decision. While filling out a car lease form, you will encounter several leasing terms.
These include:
- Initial Payment – It’s a downpayment, like a deposit you submit at the start of the lease contract. You will find the option of depositing the monthly payment of 6, 9 or 12 months in Irish car leasing services.
- Excess Mileage & Damage– You must pay for the extra mileage mentioned in the contract length. You’re also required to keep the vehicle in good condition and keep up with all the required services. These tires are often built into the price of the lease. Another benefit to leasing.
Leaving the Contract
You have the option to leave the contract before it ends. However, there are consequences you will face, like paying the break contract fee. It may be as large as the rest of the contract payments. Or at least a multiple of the monthly fee, depending on how long the contract has left.
Mileage Cap and Servicing Agreement
While signing the car lease contract, you must estimate how many miles you’ll drive over the contract length. If you go beyond the decided mileage, you will be charged.
Additionally, it’s your responsibility to bring the car for a service/repair the vehicle as needed.
Ownership
During the contract, you don’t own the car at any point. After that, however, it’s up to the leasing service provider to offer you an option to buy the car. Then, if you deem it suitable, pay the remaining car amount at the end of the contract and take it home.
Final Words
You might still be wondering if leasing is better than buying through a normal loan. It’s a tricky question because only you can answer it. Whether you want a brand new car, or the peace of mind of owning the car, or if you just want one monthly fee to cover all the servicing and tyres as well. Do a bit of research on the different lease options available, dealers will often have a few offers going.
