What is the best way to fund a new car?

Changes in consumer behaviour and attitudes over the last few years have had a real impact on a motorists attitude on how to fund their next car and whether it’s better to get a car on finance or lease or whether to purchase a car outright.

A usership model is used a lot in today’s society, with services such as Netflix built on this, with convenience and flexibility, plus affordability in the short-term, now more important than previously-valued ownership.

There are pros and cons to each so, let’s take a closer look at the three major ways of getting a new car: ownership, traditional leasing, and salary sacrifice.

Owning your own car

First up, owning your own car. Owning your own car definitely has its perks. For one, you have complete control over the car and there are no on-going finance costs since you own it outright. However, you do have to deal with depreciation and all the other costs associated with maintenance and upkeep.

Pros:

• It’s yours to do with as you please – you can customise it in any way (insurance permitting) and don’t need to worry about how many miles you do
• There are no regular finance costs concerning the car as you’ve bought it outright, so nothing owing to anyone
• You can sell it whenever you want and hopefully make some money on it as its your property to sell

Cons:

• Brand new cars are notorious for depreciation – meaning, the likelihood is, you’ll lose money on the car you buy when and if you come to sell it
• All of the costs – insurance, servicing, maintenance, tyres, breakdown cover etc – are all variables and need to be renegotiated each year or paid for each year as needed, so budgeting is more tricky than with a fixed cost agreement
• You need to have a large sum to buy the new car, or take out a loan to be able to finance it

Leasing

Let’s consider some of the pros and cons of a traditional lease or personal contract purchase

Pros of leasing a car:

• Fixed monthly payments – as you’re paying a set amount each month, budgeting for the car is simple. Especially if your lease also covers your servicing and maintenance costs
• No need to worry about selling the car: When you finish a lease, you simply return the car to the dealership and walk away. You don’t need to worry about finding a buyer or negotiating a sale price
• You get to drive a new car every 2/3/4 years depending on the length of your lease

Cons of leasing a car:

• There is a mileage limit so you’ll need to restrict the amount of miles you do, or pay an additional fee if you go over the agreed amount
• You don’t own the car and have to hand it back at the end of the term of your lease
• There is a risk of additional fees if you return the leased car with excessive wear and tear or damage
• You’ll still need to arrange motor insurance for the car which is often variable year on year
• Leasing can be more expensive on an annual basis than buying a car, plus there is often a large deposit or upfront payment required
• It’s a fixed term contract, without an option to end the agreement early without a fee

Salary Sacrifice 

Salary sacrifice cars are a type of arrangement offered through employers where  an employee agrees to give up a portion of their salary in exchange for the use of a brand new car. The employer then uses the sacrificed salary to lease the car on behalf of the employee.

We’ll now consider the plus points and negatives of these arrangements…

Pros of salary sacrifice cars:

• Thanks to it being a benefit of employment, there are savings available on electric and low emissions cars as the money is taken from salary before tax and NI. As the benefit in kind they attract can be as little as 2%, a 20% taxpayer can essentially save 29% on the amount they would be paying for the car
• It’s a simple way to drive a new car every 2/3/4 years, as your employer handles the leasing and payments for the car on behalf of the employees
• At Tusker cars come with insurance, servicing, maintenance, replacement tyres and breakdown cover as standard, there is nothing else to worry about other than enjoying a brand new car
• There’s no worries about depreciation or losses as there’s no ownership
• A fixed amount comes from your salary every month, meaning budgeting is simple and there are no surprises
• There are no upfront costs involved as the agreement is through your salary
• Although you set a mileage limit at the beginning of the agreement, you can choose to amend during the life of the agreement

Cons of salary sacrifice cars:

• As with leasing, it’s a fixed term agreement, without the option to end it during the term if you change your mind ,there are options if you leave your employment due to redundancy or resignation or get diagnosed with a long-term illness etc.
• The monthly amounts don’t mean you own the car. At the end of the agreement, you can choose to return the car, exchange it for a new one or purchase it based on the market value
• There is a risk of additional fees if you return the leased car with excessive wear and tear or damage (Tusker make sure to adhere to the BVRLA guidelines on this for fairness)
• You don’t own the car and have to hand it back at the end of the term of your lease