If you’re in the market for a cheap new car, car leasing may be the most appealing form of car finance as it is generally considered the most cost effective method. However, what makes car leasing cheap and in what circumstances can cheap 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.
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 two-four year period – 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 worth if it were sold at that point in time. However, you’re not buying the car, you’re leasing it – so another value of the vehicle is determined. This is the ‘residual value’ – which is an estimate of what the car will be worth at the end of your lease term after depreciation is taken into account. Generally speaking, if a car is worth around 50% of its retail price after three years, it has held its value well.
You then make 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.
At the end of the term you simply return the vehicle to the leasing company. You will have the option of taking out a lease on another new car, and if you have a personal contract purchase (PCP) agreement (which is another form of car leasing) you will have the chance to buy the car outright.
When is it cheaper to lease than to buy?
If you can find a cheap car leasing deal, it is invariably cheaper to lease than to buy over the contract period. This is because leases are generally taken over short periods – and you are paying the difference between the sale price and the residual value, rather than the full sale price plus interest. On the downside of course, the car is never yours but if you take out a PCP agreement you will have the option to buy at the end of the term.
Another advantage of cheap car leasing is that the initial down-payment is comparatively low. A leasing company will usually ask for the equivalent of three monthly payments – meaning you don’t have to raise a huge amount of cash upfront.
One thing you should be aware of 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 here on ContractHireAndLeasing.com and compare these to find the best offer.
- Think about the type of vehicle you want – One of the great advantages of car leasing is that you can afford cars that would not normally be in your price range. This is because the residual value of many luxury cars such as BMW, Mercedes and Audi cars stays higher than most conventional vehicles. Consequently, leasing a seemingly more “expensive” car can often be more cost-effective than leasing a traditional alternative. The best cars to lease should have a residual value of around 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 before new registrations are introduced (i.e. 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.
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