Lease finance
If you want the use of a car without all the hassle of ownership, lease finance might appeal to you. It’s basically a rental agreement – like with hire purchase, the finance company will buy the car for you and then lease it to you in exchange for regular payments over an agreed period.
Lease finance is generally an expensive option compared to other types of motor finance, but it gives you the freedom to change cars regularly, so it’s popular for people who like to upgrade every few years without all the stress and cost of selling and buying.
There are two types of car lease:
- With a finance lease you’ll pay lower instalments throughout the loan term, but you’ll have a balloon payment to make at the end, which may end up being more than the value of the car at that point. Once you’ve made your last payment, you can make an offer to buy the car, or simply return it if you don’t want it anymore.
- Your other option is an operating lease. With this type of motor finance, you will never own the car – at the end of the contract, you’ll simply return it to the lease company.With operating leases, the finance company will often take care of all the upkeep and maintenance. This can be super convenient, but expensive – a service fee will be built into the cost of your car finance.
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Find your ratesLease Finance Pros and Cons
Pros:
- Lease finance is easy to access because it’s low risk for the lender. A lot of dealers have relationships with in-house finance companies and can arrange it on the spot.
- It’s ideal if you don’t want the hassle of maintaining your car and don’t mind paying for someone else to take care of it.
- Lease finance means that you can upgrade your car regularly without any of the hassles of buying and selling – so you can always have wheels to be proud of.
Cons:
- With lease finance, you never actually own a car! You make regular payments for the use of the vehicle, but at the end, you don’t have an asset to show for it.
- Lease finance is among the most expensive forms of car loan, especially if you opt for an operating lease with a built-in service fee.
- There are a lot of rules to worry about. As with hire purchase, either type of car lease will come with conditions and restrictions. The car you’re driving belongs to the finance company, and they’ll want to protect their asset – so you’ll probably be required to take out comprehensive insurance, ensure it’s serviced regularly, and in some cases stick to mileage limits or face heavy penalties.
Other car finance options
1. Car Loan
Perhaps the most obvious motor finance option is a car or vehicle loan. The key feature of this kind of finance is that it is a secured loan, where you use your new car, motorbike, or other vehicle as collateral.
2. Personal Loan
If you don’t want to use your new car as security for your loan – or if you’re buying a second-hand car that’s more than six years old, you could opt for a personal loan instead to finance your new motor.
3. Mortgage
If you own a property and have built up some equity, you might be able to fund your car purchase by redrawing on your mortgage.
4. Hire Purchase
Hire purchase is very different from a car loan or personal loan. With this type of motor finance, YOU are not actually buying the car, and you won’t own it until the end of the contract.
