Cheap Car Leasing
If you’re in the market for a cheap new car, car leasing is generally considered the most cost-effective form of car finance. But what makes car leasing cheap, and in what circumstances can car leasing prove to be a better option than buying outright?
This guide to cheap car leasing will explain how the process works and how you can grab a cheap car leasing deal.
What is car leasing and how does it work?
Despite the obvious financial benefits of cheap car leasing, many are put off because they believe the process is complicated and buying is easier. In fact, car leasing is straightforward and there are vast advantages to exploring this option.
Firstly you contact a leasing company about the vehicles they have available, just as you would a car dealer. The cars will be obtainable for certain contractual terms – usually a period of between two and four years – and this will be the length of your lease.
The car you wish to lease will have a retail price – that is the money it would be sold for, but the car will depreciate over the course of the lease agreement. The vehicle’s value at the end of the term is the ‘residual value’. You then make monthly payments on the difference between the retail price and the residual value. Clearly, the higher the residual value of the car you lease, the cheaper the car leasing deal will be.
If you go for personal contract hire (PCH, and what people usually mean when they say ‘leasing’) you simply return the vehicle to the leasing company when the lease term is over, although if your lease is a personal contract purchase (PCP) agreement, you will have the chance to pay a balloon payment and buy the car outright.
When is it cheaper to lease than to buy?
Theoretically, there should be no difference in price between leasing and buying, but it doesn’t always work that way. Leasing companies can use their size to muscle better deals on cars that sell well, and reducing the retail price narrows the gap between retail and residual values, thus lowering monthly payments.
The key advantage car leasing, though, is that the initial payment is comparatively low. A leasing company will usually ask for the equivalent of three monthly payments, so you won’t have to raise a huge amount of cash up front.
You will also be able to afford cars you may not normally be able to, because premium models like BMWs and Mercedes-Benzes often have good residual values. This means that though the purchase price might be prohibitively high, residual values will be equally high and lease rates will therefore be relatively competitive.
One thing you should be aware of, however, is that most leasing companies will give you a mileage limit that you must stick to. They use the mileage limit to determine the residual value of the car, so if you exceed this total you are likely to face charges.
How can you secure a cheap car leasing deal?
There are many steps to finding a cheap car leasing deal:
- Search online – Take advantage of online directories such as ContractHireAndLeasing.com to find the cheapest car leasing deals available from a variety of dealers and brokers.
- Do your research – Put as much thought and planning into leasing a car as you would if you were buying it outright. Research the model you want, find a number of quotes and compare these to find the best offer.
- Think about the type of vehicle you want – Because premium cars often have good residual values, a seemingly more “expensive” car can often be more cost-effective than leasing a mainstream alternative. The best cars to lease will have a residual value of more than 50% of the retail price.
- Diesel or petrol – Diesel cars are normally the cheapest to lease. This is because they are popular with large companies due to their low tax and good fuel economy. Consequently, there are many diesel cars on the market which you can grab at reduced prices.
- Think about when to lease – As with buying a car, there are certain times of the year that are better to approach leasing companies than others. For example, the month of December is usually a peak time for cheap car leasing deals. This is because many manufacturers are willing to subsidise financial offers to the leasing companies in order to meet targets. This benefit should then be passed on to the customer. Another good time to shop for cheap car leasing deals is during the weeks just before new registrations are introduced in March and September. This is because many dealers have large stockpiles of cars that they need to move on quickly to take on new stock.
- Take advantage of leasing company incentives – Look out for special offers and keep your eye on what the manufacturers are offering direct. If you familiarise yourself with the market you will be better placed to request these cheaper deals from the car leasing company.
- Use your own assets – To reduce the cost of a car leasing deal, consider offering the current vehicle you drive as a trade-in or offer a down-payment. This will help to reduce your monthly payments.
- Haggle – Don’t be afraid to haggle, but don’t be rude – remember it is the car leasing company’s objective to get the best price they can for the car, just as it is your goal to find the cheapest deal. You will be best equipped to haggle if you put in research ahead of time and familiarise yourself with similar deals on the market.