Drive a brand new car for less

Buying a car can be expensive. However, there is one way you could drive away a brand new car for no more than a few hundred pounds. Intrigued?

They say an Englishman's home is his castle, and his car is his noble steed.

Perhaps I've employed a bit of poetic license in that bit. But it's rather apt when according to Lloyds TSB*, over half of Brits admit to being emotionally attached to their cars.

And of those who harbour feelings for their car, more than half (56%) consider their vehicle to be a trusted member of their family. One in twenty would go so far as calling it "the love of their life".

Sad. But true.

I don't know just how passionate you are about your car. But I do know that, whether it be a Bentley or a banger, owning a car can also be stressful, especially when the poor dear is coming to the end of its life. If you buy a second hand car thinking you've picked a bargain and it ends up having a major problem, you could end up spending thousands of pounds only for it to end up as scrap metal.

So, if you want the assurance of a new car without the hassle, one often-overlooked alternative is to lease it.

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To lease or not to lease?

With car leasing or Personal Contract Hire (PCH), you choose the car you want, how long you want to lease it for (generally 2 to 5 years) and agree a maximum mileage and monthly payments.

After putting a deposit down of around three months' payments, the car is then free for you to drive until the end of your contract, when you simply hand the keys back to the company, choose another car to lease, or simply walk away.

But is it worth it?

The main benefit of leasing is the simplicity it offers. You're getting a new car and from the start, you know exactly how much you will be paying during the rental period, for how long and with no commitment to the car at the end.

You won't have to worry about being lumbered with a second hand car that is worth far less than it did when you first bought it, or getting ripped off with a lousy part exchange price when you trade it in for a new model.

Monthly payments also tend to be lower than financing a brand new car with a loan or hire purchase. With a low initial deposit, you could drive it out of the showroom for around a few hundred pounds.

Magic number three

As nearly all leased cars are brand new, for the first three years of the lease it should be covered under the manufacturer's warranty. There is also no MOT to pay during this period.

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In light of this, three years tends to be the most cost effective length of time to lease for. Shorter terms are more expensive on a monthly basis. And although leasing for more than three years works out cheaper in terms of your monthly premiums, after the initial three years, you lose a lot of benefits. As well as most manufacturers' warranties expiring and having to fork out for an MOT, there are also other problems associated with older cars, which generally need more maintaining.

This will not be covered when the warranty expires, and may end up costing you dearly.

Ensuring you're insured

One thing worth noting is that fully comprehensive insurance is compulsory if you take out a PCH. This is because in the event of an accident, it ensures that the party with the ‘insurable interest' (who they pay in the event of an accident; i.e., the rental company) will be compensated for any damage incurred.

Unlike car owners, who have the freedom to choose which type of insurance they want, this is a blow for those looking to save money by opting for just third party insurance.

Servicing of the car is also not included, although you can buy a maintenance package through the company which includes servicing. The costs of this in comparison with going directly to the dealer vary. So shop around before you decide.

An inflexible friend

PCH contracts also tend to be very inflexible, and breaking one for any reason will usually incur hefty penalties. For this reason, I would only recommend leasing if you lead a predictable lifestyle, where you can be sure of the average number of miles you drive per year.

This is because if you exceed your agreed mileage, you will be charged for every mile you go over. And if you overestimate you mileage, you will end up paying more than you should. So a leased car may only prove value-for-money if you can make an accurate estimation of your annual mileage.

You must also remember that with PCH you never actually own the car. It's a bit like renting a property as opposed to buying with a mortgage. Although the monthly repayments for PCH are lower than other purchase options, when you buy a car on finance, you have something to show for it at the end of your payment period. With a leased car, you don't - and will have to start again.

For this reason, in the long run, leasing a car costs more money when compared to buying. But then again, you do get to drive a brand new car and swap it every few years.

An alternative to PCH is Personal Contract Purchase, or PCP. PCP works upon the same principle as PCH, except at the start of the agreement you are offered a Guaranteed Future Value for the car. This is a more flexible option, as at the end of the term, if you're happy with your car, you buy it at the agreed price, or you can give it back as you would in a PCH.

Read between the lines

There are also possible issues that could arise when returning your car, which is why it is vital you read the contract carefully before signing anything, especially the wear and tear policy.

The term 'wear and tear' is rather abstract, and what looks like just a few stone chips to you may be interpreted as a deep scratch by the company. If any repairs are needed, you will be charged.

In the event you have a dispute which cannot be resolved, you can contact The British Vehicle Rental and Leasing Association (BVRLA). The BVRLA sets the standard for industry practice, as well as regulating it.

Owning a car, whether brand new, second hand, or leased should be a great experience. But whatever you decide to do, before you sign anything, make sure you read the contract carefully.

That way, you can ensure there will be no nasty surprises as you drive the new love of your life out of the showroom.

*Survey conducted in July 2003.

This article was first published in February 2008 and has since been updated.

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