Why would I lease, what’s the benefit?
It might not sound like there is much of a benefit to leasing. You’re simply paying money towards something that might not even be yours at the end of the agreement. Here’s the thing though. It might still make better financial sense to do this, rather than to buy the car.
To understand why, think about what happens when you buy a new car. Let’s say the car costs you £20,000. Almost as soon as you’ve got the car home to your driveway, it has depreciated significantly. The AA reckon that on average this is by 20% but depending on the make and model, it can be anything from 10% to 40%.
So, let’s assume your car loses value at an average rate, your £20,000 car is now worth £16,000 if you came to sell it. It’s essentially lost £4,000 in value.
There’s more. This of course assumes that you had the £20,000 in cash to buy the car upfront.
If you had to borrow to purchase the car you’re likely to have arranged finance at an interest rate of anywhere between 6% and 12%. When you factor this in, your ‘dead money’ from purchasing is now the depreciation amount plus the cost of financing.
Leasing costs can also be cheaper than you may think, particularly on some larger cars such as Mercedes or Volvo. That’s because the cars typically hold their value better and the lease firm can afford to charge relatively low lease fees whilst making money from the resale of the vehicle.