Tuesday, August 24, 2010

When leasing a car is better than buying


I would like to start this article with a famous quote from oil baron Paul Getty "if it appreciates, buy it. If it depreciates, lease it". Many would say that is money management 101 or simply think it is common sense. So why buy a new car when you can lease it.

Mr. Getty's saying is a perfect fit for fleet managers and business owners alike who are building or renewing their fleets. In this article I'll point out key benefits to why leasing can be a real money saver from a business perspective.

When you buy a new car, be it privately or for a business, the minute you drive it off the forecourt it starts to depreciate, in other words you are loosing money the moment you drive your new car out of the garage you bought it from. This brings another subject into play, car depreciation, but that is content for another article.

Even though I won't discuss car depreciation in detail here, that is something you have to take for granted when leasing or contract hiring a car or a whole fleet. I recommend German cars as they depreciate far less than other brands. More on this later.

First of all let us understand the concepts of car leasing. The concepts of leasing a car are fairly simply, yet many business owners and fleet managers are often sceptical about it. First of all car leasing is not renting as many people mistakenly believe.

That said, leasing is a financial method, similar to a loan. When you lease a car you will be paying a set amount a month to purchase a new vehicle, but this vehicle won't be yours. At this point you might be asking yourself, what is the point in all this, paying for something that won't be mine?

If you asked yourself this question, I have to agree with you to a certain extent, but there other benefits that make car leasing more attractive than buying a new car. First, monthly payments are on average 30% to 60% cheaper than the ordinary car loan and there isn't the need for a huge upfront deposit. In general the majority of car leasing companies will only ask for a deposit of 3 monthly payments.

Second, you can renew your fleet every 2 to 4 years depending on your leasing contract. Not to mention that road taxes are usually included in the lease price and as they are brand new vehicles, warranty covers most of the maintenance costs.

Third, as afore mentioned maintenance costs are little to none specially because when you lease you will always have new car in hand and you do not need to worry about it breaking down unless it is a manufacturers problem. In those cases maintenance is also free of charge.

Fourth, no used car hassles, Lease and eliminate the headaches of trying to sell used cars. With leasing you simply return it to the leasing company and choose a new one. Imagine renewing your whole fleet of vehicles by simply ringing your leasing company and scheduling it, no hassles, no time off work hopping from dealer to dealer after the best deals.

As you can see there are countless benefits that make car leasing better than buying from a business standpoint. A recent study revealed that 20% to 25% of all new cars, trucks, SUVs, and vans are leased. In the premium segment numbers are even higher, approximately 75% of luxury cars purchased in the UK are leased.

Determining the lease price of a car

To determine the lease price of a given car, a series of factors are to be considered. First we have the initial purchase price, it is brand new, millage and condition are disregarded, if it is a used car these three factors are brought into the equation.

But the two most important factors that will influence your monthly payments are residual value and depreciation. Residual value is an estimate of the value a given vehicle will have when it reaches the end of the lease.

As afore mentioned depreciation has a great influence in the final price of your monthly payments. In short, it refers to the reduction in the car's value caused by age. Brand and model are closely related to depreciation, as some brand depreciate less than others.

Reason why I recommend German cars is their depreciation factor is way better than other brands like some Asian brands like KIA and Hyundai. For instance, you can lease an Audi for less than £240 a month, way less than what you will pay a loan on the same car.
(ArticlesBase SC #3108552)

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