As a private or business driver, you have several options when it comes to leasing a new car. When deciding which one to go for, naturally you'll want to make the best long-term option that'll still suit you at the end of the lease. Here are some of the main pros and cons of each type of car lease:
Pros: You can drive a new car every two or three years, without having to worry about depreciation or when the warranty ends. The initial deposit is likely to be lower, and monthly payments are fixed so there are no surprises. VAT-registered business drivers can also reclaim part of the VAT on each finance payment - and at the end of the contract, you simply hand the vehicle back.
Cons: You won't have the option to buy the car at the end of your contract, and as the car remains under the dealer's ownership you will need comprehensive insurance. The estimated mileage you'll clock up in the vehicle is determined at the start, with penalties for going over this figure.
Pros: With a balloon payment left until the end, monthly payments on a PCP are lowered. Fixed costs will make budgeting simpler, and means you can enjoy a higher-spec vehicle for a better price. You have the option to buy the car at the end of the term, part-exchange it for a new model or just hand it back in.
Cons: Overall, a PCP does work out more expensive than a Hire Purchase Agreement (HPA) when the balloon payment is taken into account. You will need comprehensive car insurance and to stick to your agreed estimated mileage.
Pros: It's possible to choose a more expensive car that you wouldn't otherwise have been able to buy outright. The loan is secured against the car, potentially making interest rates on your repayments lower.
Cons: You can't sell the vehicle on without written permission, and it'll be repossessed if you fall behind with payments. Interest rates aren't guaranteed to be lower - they'll definitely be high if you've got a bad credit rating. The 'option to purchase' fee at the end may also be increased.