Are you considering leasing a car? If so, you may be wondering about the difference between a lease purchase and a contract hire. Both options provide individuals and businesses with the ability to drive a car without the financial burden of ownership. However, they operate in slightly different ways and offer distinct advantages and disadvantages. In this article, we`ll take a closer look at lease purchase and contract hire to help you make an informed decision.
Lease Purchase
Lease purchase is a type of car leasing where you pay for the car`s value over time while renting it. At the end of the lease period, you have the option of purchasing the car outright for a pre-agreed price. Essentially, you`re renting the car with the intention of buying it. Lease purchases usually last between two to four years, and the monthly payments are typically lower than those of a personal loan. The cost of the car`s value is spread out over the lease period, and you only pay for the depreciation of the vehicle.
Pros:
– You have the option of buying the car at the end of the lease period, which can be a good choice if you`re not sure you want to commit to ownership right away.
– Monthly payments are usually lower than the monthly payments of a personal loan.
– The car`s warranty covers most repairs, so you usually don`t have to pay for repairs out of pocket.
Cons:
– You`re responsible for the car`s maintenance and repairs during the lease period.
– You`ll need to pay a significant sum at the end of the lease period if you decide to purchase the car outright.
– The total cost of a lease purchase can be higher than that of buying a car outright since you`re paying interest on the lease over a period of time.
Contract Hire
Contract hire, also known as personal contract hire, is a type of leasing where you rent a car for a set period. At the end of the lease period, you return the car to the dealer. Contract hire is a popular option for businesses, but it`s also gaining traction among individuals. Monthly payments are typically lower than those of a lease purchase or a personal loan since you`re only paying for the car`s depreciation over the period.
Pros:
– Monthly payments are lower than other financing options since you`re only paying for the car`s depreciation over the lease period.
– You don`t have to worry about the car`s depreciation since you`re returning it to the dealer at the end of the lease period.
– You can enjoy driving a new car every few years since you have to return it at the end of the lease period.
Cons:
– You can`t own the car unless you opt to buy it at the end of the lease period, which will typically be more expensive than buying a car outright.
– You`re responsible for the car`s maintenance and repairs during the lease period.
– You`ll need to agree to a set mileage limit for the lease period, so you`ll need to pay extra if you go over the limit.
Conclusion
Lease purchase and contract hire are two popular options for individuals and businesses looking to lease a car. Lease purchase provides you with the option to purchase the car outright at the end of the lease period, while contract hire requires you to return the car to the dealer. Each option has its advantages and disadvantages, so it`s important to consider your budget, needs, and preferences when making a decision. Whatever your decision, don`t forget to factor in the cost of insurance and maintenance when calculating the overall cost of leasing a car.
