Car Leasing v Subscription: What's The Difference?
Have you been wondering whether you should lease your vehicle or subscribe to a car service? Which one should you choose, what's the difference, and what does it even mean? Over the years, plenty of car owners have leased their vehicles, usually through personal contract hire (PCH). Now, though, drivers have the option to subscribe to a service offering their car. Like Netflix, but for BMWs. Confused? Don't be because we're here to break down these two popular car financing options, so you can see the difference and decide which one is best for your needs.
What is Car Leasing?
Car leasing, also known as personal contract hire (PCH), is a form of vehicle financing that allows individuals to drive a new vehicle for a set period of time without owning it. Car leasing is becoming increasingly popular as it provides an affordable way for people to drive the latest models without committing to long-term ownership.
How Does Car Leasing Work?
You pay a fixed monthly fee to a leasing company for the use of a brand new car for a predetermined period of time, typically between 12 to 60 months. Once the lease period is over, the car is returned to the leasing company, with the driver having the option to start a new lease on a different vehicle.
What Are the Advantages?
One of the biggest advantages of car leasing is that it allows you to drive a brand new car without the high upfront costs associated with purchasing a new vehicle outright. Additionally, monthly lease payments are usually lower than loan payments, and there is no need to worry about selling the car when the lease period ends. You simply renew the subscription or give the car back.
What Are the Disadvantages?
You don't own the vehicle at the end of the lease period, which means you won't have any equity in the car. There may also be mileage restrictions that must be adhered to, and there may be penalties for excessive wear and tear on the vehicle.
What Types of Leases Are Available?
There are two main types of car leases:
- Personal contract hire (PCH), which is the most common type of lease and involves paying a fixed monthly fee for the use of the vehicle.
- Personal contract purchase (PCP), which is similar but also includes an option to purchase the car at the end of the lease period via a balloon payment.
What Factors Affect the Lease Cost?
The cost of a car lease is determined by several factors, including the make and model of the vehicle, the length of the lease period, the annual mileage allowance and your credit score. Higher-end vehicles and longer lease periods will likely result in higher monthly payments.
Are There Any Lease-End Options?
There are several options when the lease ends: you can return the car and start a new lease on a different vehicle, purchase the car at its residual value or simply walk away from the lease with no further obligations.
PCH or PCP - Which is More Complicated?
PCH and PCP are both types of leases, but PCH typically isn't as complicated as hire purchase (HP) or personal contract purchase (PCP), as there's no option to buy the vehicle at the end of the lease, nor is there a pay a balloon payment. You get to enjoy driving the car throughout the length of the contract before handing back the keys when the agreement ends.
There are Fewer Commitments With a Lease
Car leasing has fewer commitments than if you owned the vehicle, and it works for drivers who regularly change their car and don't want to deal with selling it every time they get a new set of wheels. You can also customise car leases, choose upgrades for the car and select additional services like maintenance and servicing. These additional features cost extra but make having a car much less hassle.
What is a Car Subscription?
Car subscription is a new(ish) alternative to traditional car ownership and helps you drive a vehicle for a monthly fee without having to buy or lease it. Car subscription services are gaining popularity as they offer flexibility and convenience for those who want to drive a car without the long-term commitment of ownership.
It comes at a time when the subscription economy is booming – we pay monthly for things like Netflix, Spotify, the gym, rent and more. In layman's terms, a car subscription works much like any other form of a subscription-based model. But how is it different from a lease?
Car Subscriptions Are Usually All-Inclusive
With car subscription methods, the monthly payments tend to include the cost of the car, tax, insurance, maintenance and breakdown cover. On the other hand, a lease typically covers the cost of the car. Anything else is an added extra.
There's One Simplified Payment
Think of a car subscription as an all-in-one approach to owning a vehicle. You only need to think about one payment each month, rather than viewing all the costs associated with car separately. Fuel is the only aspect not included in the regular monthly price, which you won't need to worry about if you're buying an electric vehicle. 🍃
Car Subscriptions Can Offer More Flexibility
There are several types of car subscriptions, including short-term subscriptions that last for a few weeks or months, and long-term subscriptions that last for several months or years. Some subscription services also offer tiered subscriptions that allow individuals to choose from a range of vehicles.
What Happens When the Subscription Ends?
When the subscription period ends, you'll have several options. You can renew the subscription, switch to a different car, or simply walk away from the subscription with no further obligations. Some subscription services may offer the option to purchase the car at its residual value.
Are There Any Disadvantages to a Car Subscription?
One of the main disadvantages of car subscription is that it can be more expensive than traditional car ownership in the long run. Additionally, there may be mileage restrictions and penalties for excessive wear and tear on the vehicle.
Leasing v Subscription: The Same, But Different
Essentially, leases and subscriptions offer you a way to get the keys to a new or used car without paying the full price upfront. Many drivers see them as smart options, especially as new vehicles depreciate in value as soon as you drive them away from the dealership. With a lease, however, you don't get any of the extras like maintenance included as standard in the price. For some, this might make a car subscription more appealing, thanks to the all-inclusive nature of the model.
What About the Mileage?
Regardless of whether you get a lease or subscription, you should factor in mileage costs. When choosing your preferred method, you'll be asked how many miles you expect to drive each year.
The lower the mileage, the lower the monthly payments. Sounds great, right? Well, it is as long as you keep within the range. The lease or subscription company may charge you for each extra mile if you go over the amount.
Extra mileage charges vary from finance provider to finance provider, but you can expect to pay anywhere between 3p and 30p for each mile. That's why it's important to have an idea about how many miles you'll drive your car over a 12-month period. It doesn't need to be an exact amount, but you should have an estimate.
What About the Deposit?
Car leasing usually requires a deposit up front, with most lenders asking for between one and 12 monthly payments in one go. The higher the deposit, the lower the monthly payments. Essentially, you're looking at paying a couple of thousand pounds for a new car at the very least.
Car subscription deposits vary depending on the lender, but most tend to be in the region of one month's payment. So if your monthly payments are £350, you can expect to pay the same amount for the deposit.
You also get it back at the end of the subscription as long as the vehicle is still in good shape – another factor that might make car subscriptions more appealing than leasing.
Lease a Vehicle or Subscribe to a Car?
The option you choose – if any – is ultimately down to your car-buying needs. If you're thinking of leasing then it might be worth checking out a comparison site for car finance lease deals offered by companies, such as Auto Lease Compare. And if you want to compare the cost of leasing against a car purchase loan facility then you might want to look at some figures using a finance lease car calculator.
For some motorists, the appeal of paying a lower deposit and having other factors like insurance and tax covered within the monthly payment is appealing. Yet others may prefer to lease a car outright. Whether you go for lease, subscription, loan or buy the car upfront, it's good to have options, and drivers around the UK can benefit from different ways to get the keys to their next set of wheels. 👍 🚘