Leasing a car has never been easier, but is this a better option financially than buying a new car? As well as being a popular stand-up comedian Kamal Kharmach is an economist and a VRT News’s ‘WinWin’ consumer team. Kamal Kharmach examined what is best: leasing of buying? He reached the conclusion that ‘It depends on whether you intend to use the car for a long time or not”.
Is it best to buy of lease a new car? Economist Kamal Kharmach says "You are better off buying a recent second-hand car”
Mike Barlow
Published:
Do you want to enjoy (relatively) carefree motoring and be able to get a new car every few years without it breaking the bank? Or would you rather own the car that you drive and pay for it either upfront or on hire purchase? If you own rather than lease it, the vehicle can be trading in when you buy your next new car, thus reducing the price. Kamal Kharmach says that this is an important consideration when deciding whether to buy or lease.
When you lease a vehicle under an opetational lease contract, you pay a monthly sum for a fixed number of years and then you return the car to the leasing company. You are not given the option the option to buy the car over afterwards. However, this is the case under the terms of a finance lease.
Difference between leasing and buying is negliable
As his example Kamal Kharmach took a new car with a value of 38,876 euro. Not only the purchase price is important here, but also the other costs that need to be taken into consideration.
“On average over five years, you pay around 4,200 euro for your insurance, 2,000 euros for maintenance and 3,000 euros in road tax. Add to that the cost of fuel, which is on average 9712.50 euros.”
“From that total amount you should subtract the car's residual value. The residual value is the difference between the purchase price and the value the car still has on the second-hand market when you wish to sell it. In this case, that would be around about 17,500 euro. Therefore, the total cost over 5 years is 40,087.50 euro over five years if you buy the car yourself.”
“With leasing, you would pay an average of 500 euro per month. Spread over 60 months this comes to 30,000 euro. This includes your insurance, tax and maintenance costs. You only have to factor in fuel costs of around 9,712.50 euro. This comes to a total cost of 39,712.50 euros. So, the difference between the cost of leasing and buying the same new car outright is a negligible”.
When is it better to choose to lease?
“If you want predictability and you want to budget. Everything from insurance, maintenance and so on is included in the fixed monthly sum you pay the leasing company. So you know perfectly well in advance how much you will spend on your car every month. Leasing is also interesting if you cannot pay for a new car outright. If you want to be able to drive a new car relatively quickly and flexibly, leasing can be advantageous.”
On the other hand, buying a new car is more advantageous than leasing in the following circumstances. “If you do a lot of mileage, then it is better to buy the car yourself. A lease contract only includes a limited number of kilometres per year. Also, if you plan to keep driving the same car for a long time and thus want it is often wiser to buy.”
Buying a recent used car
There is also a third option, which is also better for your wallet: buy a used car. “Choose a car that is 2 or 3 years old. A brand-new car loses some of its value very quickly. As soon as you drive out of the garage, your car is already worth a lot less.”
“If you buy a recent secondhand car its price shouldn't depreciate to this extent. In addition to this the car is still relatively new and if you buy a used car from a professional car dealership, you will get a year's warranty."