Forget About New Car Depreciation With RTI and VRI Gap Insurance
GAP Insurance Protects New Car Buyers Against Car Depreciation
WHAT IS CAR LEASING?
The process of car leasing is straightforward enough – you pay a monthly
sum to drive a car around, usually over a two-four year period, but the car
is never actually yours to own. At the end of the term you simply give the car
back to the dealer, take out a new lease, or, in some cases, you might be given
the option to buy.
Car leasing deals with arguably the biggest problem associated with buying
a new car – the fact that the car immediately loses a large portion of
its value as soon as you drive it away from the garage. Of course, the more
you drive your vehicle the less it is worth but different makes and models have
different depreciation rates.
Consequently, when you take out a car lease, a sum is worked out known as the
‘residual value’ – this is an estimate of what the car will
be worth at the end of your lease period. Your monthly payments are then based
on the manufacturer’s suggested retail price (or the price you negotiate
with the dealer) minus the residual value. In other words, you pay the difference
between what the car is worth when you take out the lease and what it is estimated
to be worth at the end of this period.
This means that the higher the residual value of the car, the less you will
pay on your car leasing deal.
An intelligent way of combating depreciation and safeguarding
your pocket so there’s no surprises should the worst
happen and your lease car is written off is to purchase
WHAT ARE THE OTHER METHODS OF CAR LEASING?
• Paying by cash – An option not available to many, but all interest
payments are avoided if you have enough money set aside to buy a vehicle outright.
However, even if this is the case you should think hard about whether you can
afford to commit so much money into a single purchase, particularly as the value
of your investment decreases immediately. Leasing could be a better option if
you want to change your car every few years.
• Personal car loans – With a car loan you own the car from day
one – however, you will need to repay the original value of the vehicle
plus interest. Personal car loans come with a strong element of risk as if you
cannot afford to make repayments, you could lose your car, or even your home
if that is what you have secured your loan against. Loan rates vary and each
application will have an affect on your credit rating – receiving a poor
rate could leaving you paying thousands of pounds extra on a car. The good news
however, is that there are a large number of car loan lenders and there are
no restrictions on the type of car you drive or the mileage you accumulate.
Generally, car loans are best suited to those who know they can afford to repay
the loan quickly.
• Hire purchase – This is a similar process to car leasing except
that the car is yours at the end of the leasing period. You pay a deposit and
monthly instalments over an agreed period before the car becomes yours –
so in effect you are taking the car with a right to buy. The key to finding
a good hire purchase agreement is to shop around between online dealers and
brokers as interest rates can vary widely. Many manufacturers will offer their
own promotions, which are well worth considering. A hire purchase loan is always
secured against the vehicle so there is no risk of losing your home, but do
look out for additional fees such as an ‘option to purchase’ fee.
• Personal contract purchase – This is a type of car leasing which
gives you the option to either pay a final sum to own the car, or return it
to the dealer. The car is not yours until the end of the term and it is important
to note that there may be mileage restrictions in case you wish to return the
vehicle. However, there is real flexibility as to what you want to do with the
car at the end of the term and, as with regular car leasing the payments are
usually much lower than a personal car loan. Occasionally, depending on the
personal contract plan you choose, you may receive additional incentives such
as inclusive road tax or maintenance costs.
SUMMARY OF CAR LEASING BENEFITS
Here is a quick summary of the extensive benefits associated with car leasing:
• Lower payments – Your monthly payments will be lower with a lease
than purchasing options.
• Lower down-payment – Typically you will only be asked to pay the
first three months ‘up-front’.
• More options – Due to the lower expenses you can often afford
cars that were previously out of reach, financially (though it is important
to stick closely to your budget).
• More choices – At the end of the agreement you can simply walk
away from the car or choose to take out another lease.
• Additional benefits – Some car leasing companies may carry special
offers and be willing to include servicing, maintenance and road tax as part
of the leasing agreement.
DISADVANTAGES OF CAR LEASING
While car leasing will prove to be the right option for most, the other car
financing options will offer a better solution in certain circumstances. Here
are some important factors to consider before you lease:
• You won’t own the car – Though the flexibility to lease
another car will be an advantage to some, for others never owning the vehicle
will present difficulties – if you don’t make repayments your car
can be repossessed.
• Watch out for other charges – When estimating the residual cost
of the vehicle to determine your payments, the leasing company will ask you
to stick to an annual mileage limit. For most, this won’t be a problem,
however, if you do exceed this limit you could face additional charges. Also,
you could be charged for any damage to the car if you choose to hand it back
at the end of the lease period.
• Car insurance – Remember that as you are effectively driving someone
else’s vehicle you must take out a comprehensive car insurance policy.
• Settling early – Some car leasing companies will charge you interest
for the remaining months if you attempt to settle your lease early.
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