Over the last few years, the car leasing market has seen a boom. According to the BVRLA, the vehicle rental and leasing industry contributes roughly £48 billion annually to the UK’s economy and in 2015, leasing accounted for 20% of all new car purchases in the UK. This is because drivers are finding that leasing is a much better financial option for acquiring a car. More than 53% of motorists in the UK claim they are reluctant to buy new cars because of amount of money they lose through depreciation.
To get more insight into the reasons for these changes in consumer behaviour, Alex McGawley, head of sales, shared his experience.
Leasing a car is usually cheaper
When you lease a car, you have a car for a certain period of time, usually 3 years. Throughout that period, you pay a fixed monthly sum. This monthly sum accounts for the depreciation cost of the vehicle rather than the value of the vehicle. For example, if the car is worth £20,000, and after 3 years, its value is £12,000, it’s depreciated by £8000. That is the total sum you will have to pay over the three years. With PCP on the other hand, you pay monthly instalments, and at the end of the contract, you can decide whether to give it back to the company, or to own the car. If you choose the latter, you have to make a balloon payment for the remainder of how much the car is worth.
Alex explains, “PCP can be mis-sold or not explained properly to people. If customers want to keep their car, they have to increase their payment or pay off the final balloon payment… more people are hearing about leasing and realising they can get cars a lot cheaper per month with less stress. Cars are always losing money. If you put your life savings into a car it’s a bad investment because you won’t get your money back.”
Attitudes towards car ownership are changing
Would you still buy the handset for the latest smartphone? Probably not. With the rate that smartphones are developing, you’d probably get it on contract, so you can upgrade to a better one when your contract is over. The same can be said about cars. A car is the second biggest investment after a house. However, attitudes towards car ownership are changing. Cars are getting expensive, and people would much rather invest their savings into buying a house. According to Alex, cars are becoming more disposable, similar to how we treat our other material possessions like mobile phones.
“Much like mobile phones, people are wanting new cars whenever their contract is over…social media has a big influence on this because people’s lifestyle expectations have increased. Whereas previous generations who valued ownership may have bought cars upfront, most people now would rather save up for a house because buying a car is no longer as affordable as it used to be. Customers want to be able to drive away on a fixed monthly budget which suits their income, so that they can easily manage the costs without the hassle of selling it.”
Additionally, many motorists want the latest technology in their car. Having the opportunity to get a new vehicle every few years with the latest technology at a lower monthly cost, makes car leasing even more compelling.
Leasing a car is less stressful
Customers find leasing a car a less stressful option for two reasons. Firstly, they don’t have to deal with the stress of selling a car when they want a new one. Secondly, many customers have stressful experiences at dealerships, often feeling like they have to make a decision on the spot. According to an Autotrader study, less than one percent of car shoppers described the car buying process as their ideal experience. Two thirds of car shoppers don’t want to be pressured during the test drive and 56% prefer being anonymous to the dealership until they lock their purchase terms. According to IHS automotive, most shoppers spend an average of three hours in the dealership negotiating and doing paperwork.
Alex says, “With leasing, you can research from the comfort of your own home and avoid that unpleasant experience to the dealership…everyone is online now, if you’re looking for a house, you would go online first, or if you are buying a phone you have a look online. With cars, you may go into the dealership to test drive it, but essentially with leasing, you’d purchase online.”
What about wear and tear and excess mileage?
There are a number of people who are uncomfortable with the idea of leasing because of excess mileage charges, or charges outside of the “wear and tear” guidelines. If you lease a car, and it has minor scratches or stone chips, it’s usually covered under the BVRLA’s Wear and Tear guidelines which means you don’t have to pay for them. However, if you have a big dent in your car that isn’t covered by the wear and tear guidelines, you pay the leasing company. Similarly, if you go over your agreed mileage, you have to pay extra. This is why some customers are deterred from choosing a lease. But, if we look at this on a granular level, how different is this from PCP or buying a car? According to Alex, this isn’t any different.
“If you’re on PCP, you’d still have to pay for damage or excess mileage. And if you’re selling your car with a dent or with more mileage, the value of your car will be much less than before because you’d have to account for those.” Either way you’re still losing money.