How car leasing gives you lower payments, more flexibility and a new car every few years

If you’re considering buying a new car, you’re probably considering using finance. Figures from the Daily Telegraph show that in the 12 months to August 2013, almost three in four (74.5 per cent) new cars that were bought by private buyers were sold through car leasing, contract hire or finance deals rather than cash.

With car leasing and contract hire becoming ever more popular, we look at the benefits of finance and why more and more people are driving new cars using a car lease.

Car leasing is a ‘win-win’ for manufacturers and drivers

Car leasing and finance has become more and more popular over recent years. In 2007 just over half of all private cars were sold on credit whereas the figure is now almost three quarters.

Paul Harrison, head of motor finance at the Finance & Leasing Association (FLA), claims it’s driven by a post-recession desire to watch the pennies: “Car finance deals are generally written at a fixed interest rate which means people know exactly what the monthly repayments cost.”

Many companies now offer their entry level new cars for under £100 per month. It’s possible to use a car lease or contract hire agreement to drive leading models from the likes of Ford, Volkswagen and Skoda for under £100 per month.

Malcolm Banfield, sales director for RCI, which provides all the finance for Renault, Nissan and Dacia, credits car leasing and ‘personal contract purchase’ (PCP) with the increase in point-of-sale finance: “It’s a win-win. Customers have lower monthly payments than with HP [hire purchase], more flexibility at the end, and they can change cars for a new model every three or four years.

“For the car maker there’s a faster renewal of customers. You’re getting a sale every three years. With cash or HP it’s likely to be every six years,” he added.

So, why are more people choosing car leasing and contract hire/contract purchase deals? We look at this next.

Cheap rates, low payments and flexibility attract drivers to car leasing

The new car market in Britain is buoyant and so, ‘to tempt owners in a highly competitive market, manufacturers are currently subsidising many PCP offers to make them more desirable’ reports the Daily Telegraph.

Using hire purchase or finance to buy a car normally works out more expensive than buying for cash because of the interest that you pay. However, with lots of manufacturers and dealers offering 0 per cent deals, you don’t have any interest to pay.

If you also get a discount on your car and only have to put down a small deposit (3-6 months payments), buying through finance can end up being as cheap as using your own cash. It’s this that has attracted drivers to using car lease and contract hire plans.

There are three main types of car finance:

  • Hire purchase – You pay a deposit plus fixed monthly payments for an agreed term. At the end of the term a small final payment is made and the ownership of the car is transferred for you
  • Personal contract hire – you lease your car for a set period. You pay a small deposit and fixed monthly payments for an agreed time and then hand the car back at the end of the agreement
  • Personal contract purchase – this is a mix of the two but the car’s value at the end of the agreed term is decided at the start of the agreement. Having made your fixed monthly payments you can decide to return the car at the end of the term or pay an agreed fee to own the car outright

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