Your car – lease new or buy second-hand

Posted by Barry Stamp in Personal Finance on 23 March 2015 - Barry is Managing Director at checkmyfile

Thinking of changing your car?

The way you finance it is a really hard decision to make, and while most of us simply buy a replacement car, whether new or second-hand, few consider the option of leasing.

To give a sense of perspective, you first need to determine how much your current car is costing you to run. Only then can you make an informed decision.

Some years ago I bought a car new for £25,000. I ran it for over 11 years and sold it for scrap. During its lifetime it averaged just over 30mpg. It covered 170,000 miles. Towards the end of its life, the usual nasty repair bills came in with increasing regularity, some costing as much as £500 a time, plus a lot of frustration and time wasted. And of course tyres needed replacement every 20-25,000 miles at a cost of £200.

So in simple terms the car cost me £189 per month (£25,000 divided by 132 months) plus tyres and repairs, which cost approximately £26 per month on average. So that comes to £215 per month, plus servicing, MOT, tax and petrol. And that is probably the cost of running a typical car, or as close as you can get it, which most motorists bear without too much thinking about.

Now if I were to replace that same model of car today, I could lease it from – well worth a visit if only for its psychedelic brilliance – for just over £310 per month. I wouldn’t have to worry about tax or MOT for 3 years, the car would be much more reliable, and with a claimed fuel consumption of 60mpg, I’d save petrol too. At a nominal price of £5 per gallon, petrol for my old car cost me £214 per month. A new leased one would cost me half that, saving £107 per month.

Pick the right lease deal and a leased car comes with free breakdown cover (worth up to £10 per month), doesn’t need an annual MOT (saving approximately £3 per month), often has no road tax to pay (saving up to £20 per month) and can be replaced for a nice new one in three years’ time, by which time it will probably still be running on the same tyres.

There is still servicing to pay for, but add it all up and the cost of leasing a brand new car can often be less than buying a new one and running it into the ground.

For many motorists, there is a bit of an issue about the car ‘not being yours’, but I have leased cars, and for me this is no issue at all. The only real disadvantages of a leased car is that personalised plates are not an option, you need to think about what mileage you do, (if you go over you just pay a few pence per mile) and a few insurance companies don’t insure them (e.g. Swiftcover), but most do.

Also, as Valentine Ling of once said to me, chase the deal, not the car. There are always dealers offering great cars at a discount. If you’re in the market for a Volkswagen Up, for example, LingsCars currently offers one at just £115 per month. And with 62mpg on offer, that means that with my saving of £107 per month on fuel from my old car, and with no tax, MOT, tyres and stuff, I’d be hundreds of pounds better off, every month, if I went for a leased Volkswagen Up.

You need to do your figures, and choose the right deal, and you can make real savings if you lease rather than buy.

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