Driving without savings: pay in instalments or private lease?
You’ve got your eye on a used car, but the money isn’t sitting ready in your bank account. In that case, there are two sensible routes: you buy the car on instalments, or you privately lease a used car. Both options give you a car for a fixed amount per month. The big difference lies in ownership and who covers unexpected costs. That is why it pays to compare the two side by side before you sign.
Buying on instalments: borrowing with the car as the end goal
Buying a car on instalments is, at heart, a loan. You borrow the purchase price and repay it in instalments, with interest. There is often a final payment: a larger amount at the end of the term. That keeps your monthly payment lower. At Mobilist you can often include a final payment; with a bank, that is not always possible. Once everything has been paid off, the car is completely yours.
That ownership is the strongest point of this route. After the final instalment, you no longer make repayments and you have a car that still has value. You will still have to cover insurance, maintenance and road tax. If you want to finance a used car, for example, you can buy a car on instalments and often end up with a lower monthly payment for a used car than for a new one, depending on the offer and the terms. Warning: borrowing money costs money!
But with ownership comes responsibility. You are the owner, so you sort everything out yourself. Insurance and maintenance are on you. If something breaks outside the warranty, you pay for the repair yourself.
Private lease: use instead of own
With private lease, you pay a fixed monthly amount to use the car. The car remains the property of the leasing company. You agree the term in advance, and therefore you know your fixed monthly car costs. What is included in the monthly amount varies from contract to contract, so you should check the terms beforehand.
Here too, a used car can reduce the monthly outgoings. If you choose a used car on private lease, you lease a car that has already covered some miles, often for a lower monthly payment than a comparable new lease car. That also depends on the offer and the terms.
The downside: the car will never be yours. At the end of the term, you hand it back and make a new choice. So you are not building up any asset through your monthly payments.
How tied in are you with each option?
Both routes tie you in for a longer period, but in different ways. A private lease contract has a fixed term, and ending it early usually costs money. Only in exceptional situations, such as unemployment or death, can the rest of the contract sometimes be waived after a financial assessment. So you make your choices up front; you only make a new choice once the contract has ended.
A loan also continues until everything has been repaid. Only then is the car truly yours. If you want to get rid of the car before then, you must first pay off the outstanding loan. Early repayment is possible, but there may be charges. Whether selling the car will raise enough to clear everything depends on the car’s value at that time and on what is still outstanding.
Which route suits your situation?
Do you ultimately want to own a car and are you happy to arrange maintenance and insurance yourself? Then buying on instalments is a good fit. After the final instalment, the car is yours and you no longer make repayments.
Do you mainly want certainty over your monthly payment and do you care less about ownership? Then a used car on private lease is a logical choice. You know what you will pay for the duration of the term and then hand the car back.
In both cases, the same preparation helps: work out how much you can spare each month and read the terms carefully. Then compare the full picture over the whole term. That way, you choose the route that suits you, rather than just the lowest figure on paper.
