For example, a new car costs £20,000 to buy. Almost as soon as you’ve driven it away from the showroom, it has depreciated significantly. According to the AA, this can be anywhere from 10-40%. After three years, on average the depreciation could be as much as 60%. So, your car will be worth just £8,000. If you had to borrow to purchase the car, you’ll also need to factor in the interest on the finance, which could be anywhere from 6% to 12%.
With leasing, you pay the difference between the price of a brand-new car and its depreciation value once the agreement is over, plus VAT at 20% and interest. After an initial lump sum deposit, the payments are spread out over the term of the lease arrangement into monthly instalments.
So, if your agreement is for three years, you get to drive a £20,000 car that in the end, only costs you a total of £8,000 + VAT and interest.