Contract hire and car leasing is simple enough proposition. Though you will never own the car you lease - leasing is really another form of renting a car - you will also never take on any of the bigger risks associated with buying a car outright or dealing with hire purchase, for example.
See our examples of cars to buy on contract hire or read on for more information on this way to buy.
You pay a deposit (normally three months) and a monthly sum to rent the new car before driving it off and forgetting about any of the major issues of ownership.
Leasing terms are usually offered over between two and four years. Some leasing firms will even factor servicing, maintenance and road tax into your monthly payments. And at the end of your agreed term you simply return the car and agree on a new lease or look at your other car owning options.
Perhaps the biggest issue facing most prospective new car buyers is the problem of depreciation, or you car's residual values. In common parlance this is the amount of money your car immediately loses when you drive it off the forecourt, and continues to lose over a period of years.
This is an important thing to consider whether buying or leasing a new car, as leasing firms will factor in depreciation to any monthly figure they give you.
Some cars of course lose a heartbreaking amount of money immediately while some hold their value better. Choose a car with high resale values if you want to get the best deal on your new car leasing.
To give one example, a BMW 1 Series Hatchback 120d SE 5dr will drop from a new price of £23'215 to £16'550 by the end of its first year.
You will pay less to lease than to purchase. This includes the initial down payment as well as your monthly option. You will also be able to afford to use a better car (or any car at all, if price is the key factor in your decision making process).
Taking out a loan to buy a car inevitably means risk. If you can't make your repayments you could lose your car or any other security, and if you have a poor credit rating you won't get a loan deal anyway. Car loans are best suited to those who are certain they can afford to repay the loan in a reasonably short amount of time. Leasing may be a better option for those uncertain about any of these things.
Downsides to contract hire and leasing
Mainly, you will never own your car. You may also be asked to stick to an annual mileage limit and pay an excess from any damages you inflict upon the vehicle. You have to insure the car as you would any other car, and you may be charged for trying to settle you lease term early.