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Types of Car Leasing Options

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One option you might want to consider if you need a new car is leasing. Though it has many advantages, leasing is not for everyone. There are mainly three types of leasing options which should prove suitable in different scenarios. 

Hire Purchase

This is one of the most popular ways to finance your vehicle. With hire purchase, you’ll put down an initial deposit followed by monthly installments while using the car for the agreed-upon period, after which you’ll gain ownership of the car when the last installment is made. The overall cost will depend on your deposit amount, price of the car, and the number of installments.

Pros

  • You can drive a car you can’t afford right away, with the chance of owning it after all payments are made
  • The total payable amount can be lower than other leasing options
  • The loan is secured against the vehicle itself

Cons

  • The lender can repossess the car if you lapse on payments
  • You can’t resell the car without the lender’s permission
  • Interest rates can be high, depending on your credit score
  • Monthly payments can be higher than other options

Personal Contract Hire

This allows you to rent the car for the long-term, perfect if you’re not looking to buy any car. With PCH, you make monthly payments for leasing the car for a specific period of time. Once your contract expires, you can either return your car or take out a new lease.

Pros

  • No worries about warranty expiring or depreciation costs
  • No need to wonder how to sell the car
  • You can drive brand new cars after every few years, possibly prestigious ones that you otherwise couldn’t have bought
  • Monthly payments lower than if you bought the car
  • Fixed payments, so you can rest assured that there are no surprises in the end

Cons

  • There’s a mileage limit, which can cost you a lot if you exceed it
  • The car will never be yours because you don’t have the option to buy it at the end of the term
  • Comprehensive car insurance is required

Personal Contract Purchase

PCP is very similar to PCH, except that you’ll have the option to buy. Typically you need to put down deposit and make monthly payments. Initially, a Guaranteed Future Value is calculated, which is the car’s expected value at the end of the contract and equivalent to the “balloon payment” you’ll have to pay if you decide to buy the car. With PCP, you have three options at the end.

  1. Pay the balloon payment and own the car
  2. Return the car
  3. Exchange for a new car 

Pros

  • Lower deposit and monthly payments than hire purchase
  • No binding agreement after you finished with your monthly payments
  • Also fixed monthly costs
  • Just like PCH, you can drive a brand new car every now and then without worrying about warranties running out

Cons

  • This is more expensive than hire purchase if you decide to buy the car
  • You can’t own the car without making a balloon payment
  • You also have mileage limits and there are extra costs for exceeding
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