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Buy or Lease

Leasing is a fantastic way to own a new car and change it every 2, 3 or 4 years without losing thousands of pounds in depreciation. The car is brand new, is covered by the manufacturers warranty, along with roadside and breakdown cover. The Road Fund License is even included - for the first year on PCP and HP, and for the duration of the contract on PCH and CH

Very few people have a lump sum available to buy a new car without some sort of finance. Even if you can afford to purchase a new car outright you will still lose a great deal of money as soon as you drive off the forecourt through depreciation. The other thing to remember is that we buy hundreds of cars a year and therefore can negotiate discounts from the dealerships AND the manufacturers, whereas individuals can only receive discounts that local dealers can offer. 

The alternative to buying outright or leasing a car is to buy a non-discounted car through dealer finance or to take a personal loan. Often two or three years later when you choose to change the vehicle you discover that the settlement figure is substantially higher than the trade in value, therefore resulting in negative equity. There are two outcomes available to you at this point:

Option One

You continue with the car through to the end of the finance period at which point you own the car (which might be worth little by this point), or you can then sell or trade it in against a new vehicle.

Option Two

You fund the negative equity with the new car finance through the dealership,  e.g you have £2500 of negative equity and the new car is £10,000, you finance £12,500 against that car. Three years later you again want a new car, but you still have negative equity however this time it has doubled as you started £2500 down at the point of sale.

The solution to this is leasing.

Buying v Leasing Example:

  • you lease a £30,000 car which Affinity can discount to £22,000. It will have a residual value (or rv - i.e the resale price at the end) of £13,000 after 36 months, therefore you pay for the £9000 difference over the 36 Month term, plus finance charges, plus possible fees
  • OR

  • you buy the £30,000 car, plus possibly pay finance charges.

Unless you chose PCP or HP you will not not own the vehicle at the end of the finance period, however the money that you have spent on the lease would have been lost through depreciation if you had bought the car outright. The value of a car depreciates the same amount whether it is leased or purchased. That money is lost whether you lease or you buy, but at the end of the lease you do not have the aggravation of selling the car in order to buy another, and if you are on Personal Contract Purchase finance, you have the option to buy the car for the price which was set at the outset - the initial discounts still apply.

With leasing, you have the option of putting your monthly savings or lump sum into more productive investments rather than tying them up in a single object.

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