Cars are an expensive investment. Other than your home there will be nothing you spend as much on as a car. John Paul Getty, the famous oil tycoon once famously said “if it appreciates buy it. If it depreciates, lease it.” This opens up an interesting question. Are you better off if you lease or rent a car than actually buying one? Read on and we’ll try to explain what your options are if you need a car.
Depreciation of cars
When you buy a new car, you can lose 10% of its value simply by driving it off the forecourt. You’ll also find that cars can lose as much as 40% off its total value in the first year alone. This depreciation makes me seriously think about Getty’s quote. Can you find better value for a car if you look at alternative means of driving rather than ownership?
What are the options?
Traditional car buying involved taking out a loan where you’d make repayments over a period of time to own the car outright. A relatively new way to purchase a car is Personal Contract Purchase (PCP). PCP allows you to make monthly repayments and gives you the option of owning the car at the end of the contract. PCP is the most popular way to finance a new car. It gives you the freedom to choose whether to give the car back at the end of the contract or buy it outright, whilst giving you lower payments than traditional hire purchase. PCP works by paying a deposit, a series of monthly payments and an optional final payment. You just pay for the depreciation of the car, meaning you can hand back the car (provided it’s in good condition, below the agreed mileage limit and has been serviced as required by the manufacturer.
Leasing a car is known as Personal Contract Hire (PCH). With PCH you’ll find it is a cost-effective way to drive away ion a brand-new car with fixed monthly payments. You’ll generally find the deposit is lower than PCP and things like road tax and servicing can be thrown in for free. On the flipside you’ll have no option to own the car, strict mileage limits apply, wear and tear penalties can apply, and manufacturers PCP deals offer includes more incentives. You may find that the monthly payments work out cheaper for a higher spec model using PCH than PCP.
The third option is not to own or lease at all. Many of us live in cities now and have no need for a car most of the time. This opens up the possibility of hiring a car. My London dwelling friend has thought about buying a car but can’t justify it to himself when it’s going to sit unused for over 99% of the time. When he plans to leave London, he hires a car for the weekend and has the freedom of a car with no responsibilities of ownership. For a lot of people, this may be the best option. If you’re interested in hiring a car, there are lots of deals on car hire you’ll find on the internet.