So, you’ve decided it’s time to trade in your car for a newer model. Perhaps you’ve realised over the summer holidays that your current car is a little too small to comfortably accommodate your growing family, or maybe its age has resulted in a few too many trips to the garage.
Whether you’re in need of a car that’s bigger, faster, newer or more eco-friendly, you should try to familiarise yourself with all the options before handing over your cash.
Leasing a car
Think of leasing a car as a long-term rental – you pay a fixed sum to use the car for an agreed period of time and number of miles. There are two type of leasing deals available, the first of which is a personal contract hire (PCH) agreement, where you have to hand the car back when the term ends. Then, there’s a personal contract purchase (PCP) agreement, where you can choose to buy the car at the end of the term.
• You can lease cars that you wouldn’t be able to afford to buy, so you can take advantage of newer models with the latest features.
• The down payment on a car lease is low or non-existent, while the fixed monthly payments tend to be lower than a loan. Money Saving Expert explains* that a typical APR on a PCP deal ranges between 4 and 7%. To compare, the website also states* that interest on a personal car loan could be anywhere from 8 to 15% if you’re borrowing a small amount, dropping to as little as 3.4% if you’re borrowing a larger sum, like £15,000.
• Leasing agreements usually feature a whole host of perks. Not only will the car be covered by the manufacturer’s warranty (usually up to three years), but you might get car tax, roadside assistance and servicing thrown in as part of the deal, too.
• The car must be returned in ‘good repair and condition,’ which takes reasonable wear and tear into account. If there’s any damage to the car that isn’t classed as wear and tear, you’ll have to pay to put it right.
• Selecting the right PCP term is important as if it’s too lengthy, you could end up paying more for the car due to the interest charged on repayments. On the other hand, if the term is too short then you may struggle to afford the monthly repayments.
• You’ll face fees for breaching your contract, for instance, if you wanted to exit the deal early or exceeded the agreed mileage.
• If you plan on taking your car abroad, most finance providers require notification and you must obtain the right documentation.
Buying a car
Purchasing a car outright – whether it’s a brand new model fresh off the forecourt or a used car from a second-hand garage – can be a more cost-effective option, provided you have the savings in place. If you don’t have the cash spare, you could take out a personal loan with a bank or building society, or buy the car on hire purchase – but bear in mind you’ll have to pay interest on top of your monthly repayments.
• You have more freedom when you own your car – modify and accessorise it to your taste, drive as many miles as you wish, and sell or trade it whenever you want!
• If you can pay for the car outright, you’ll avoid paying over the odds for interest charged on a monthly payment plan. Or, once you’ve paid off the loan, the car is yours for good. Having total ownership of the car means you’ll no longer have to fork out for monthly payments, leaving you with more cash for your savings pot.
• You’re able to use the car as a trade-in for the next car you buy and the one after that, and so on…
• New cars depreciate at an alarming rate – between 15-35% in the first year and up to 50% or more over three years, says the Money Advice Service*. So you could lose money if you decided to sell your motor a few years after buying it. Different makes and models will lose value at differing rates, so it’s worth doing your research to dodge any substantial depreciation.
• It’s inevitable that as the car ages, more problems will arise, so you could see maintenance costs climb year after year. This is also something to bear in mind if you buy a used car – it won’t be in showroom condition and you need to be aware of potential warning signs which could indicate underlying issues. Ensure the seller can show you a full service history and if you know someone who’s good with cars, ask them to come along with you.
• Buying a car requires a higher down payment; though, generally speaking, you’ll save money over the long term compared with leasing it.
Whether you decide to buy or lease your next car, taking out a quality car insurance policy is an absolute must. Zurich car insurance ranges from basic to comprehensive cover and features a whole host of benefits as standard.
For example, we’ll protect your no-claims discount if you’re hit by an uninsured driver and you won’t need to pay any excess. We’ll also provide you with a courtesy car following an accident, as well as three years repairer’s guarantee when using approved repairers.
You can manage your Zurich policy online and tailor it to suit your needs, choosing from a range of optional extras like legal cover, hire car and key protection.
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