Car leasing is increasing in popularity and it is easy to see why because it can bring many benefits to motorists, including the ability to drive a brand new car every few years and without the worry of depreciation which can leave a motorist significantly out of pocket.
It is important to understand that there are two different types of car leasing – both of which are popular but very different from one another.
Personal Contract Purchase, PCP, involves making regular monthly payments over a pre-agreed term but you then have the option of buying the car at the end of the lease – known as a balloon payment or the Guaranteed Minimum Future Value. The idea behind PCP is that you only pay for the car’s predicted depreciation during the term of the contract. if you do not want to buy the car at the end, you can simply return the keys and arrange another lease.
You will need to agree a mileage allowance at the start and you will not be able to sell the car without settling the finance first with this type of lease as you do not technically own the car until all the payments have been made (if you choose to do so).
Personal Contract Hire (PCH), meanwhile, involves fixed monthly payments over a pre-agreed term (usually 2-5 years) after-which you simply return the car and are free to arrange another lease. PCH payments are lower than if you were buying the car and it is a simple, flexible way to get behind the wheel of a brand new car.
In terms of drawbacks, there will be annual mileage limitations which means that you will have to pay a charge if you exceed the agreed mileage (although this can be negotiated at the start).
Choosing a Lease Type
There are benefits and drawbacks to both approaches so it is important to consider your own needs and situation to determine what is best for you. Both leasing options are proving to be popular with motorists and much better financially than buying an automobile. According to the Finance & Leasing Association (FLA), 90.1% of their private, new car sales were made on credit in the 12 months to May 2019.
Leasing is smart because it can be more affordable while allowing you to avoid depreciation and the ability to drive new cars every few years. With the electric car revolution gathering pace, more and more motorists are wanting to drive a new car but would struggle to do so without a lease in place. PCP and PCH can both work very well and prove to be a smart move to make for motorists looking to drive a brand new car.