Take the long-term view when you opt for car leasing

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The Independent Online
THE DECISION of the Princess of Wales to hand back her pounds 72,000 Mercedes in favour of a more modest Vauxhall Senator valued at pounds 26,000 has highlighted the fact that, perhaps surprisingly, the Princess is said to have been leasing her Mercedes.

The likely cost of a full service lease, including maintenance, of a Mercedes 500SL is pounds 1,500 a month compared with pounds 700 for a Vauxhall Senator.

While this represents a substantial monthly saving in the family budget, the drop is less dramatic than might be expected by looking at list price alone.

This is because Mercedes are recognised as holding their value well, resulting in comparatively low leasing costs.

The concept of private individuals leasing their own cars is a relatively new one and is increasingly being seen as an alternative to conventional arrangements such as hire purchase.

A number of manufacturers now offer individual leasing arrangements - for example, Ford's Option contract - which are available through their dealer networks.

As an alternative, some leasing companies are facing up to today's harsher regime for company cars by moving into the personal contract hire market. One pioneer in this field is Swan National, which is actively promoting 'Car Choice' as an alternative to the increasingly less tax-efficient company car.

Anyone leasing a car should, however, be warned that they are entering into a long-term - normally three-year - arrangement and there will normally be financial penalties where a lease is terminated early. These penalties reflect the heavy depreciation costs incurred in early months of ownership.

Fortunately for the Princess of Wales, the mere fact of her ownership of the Mercedes will almost certainly have caused the car to appreciate in value and in those circumstances an early termination penalty would probably have been waived. For the rest of us, however, the consequences are severe, and a penalty of six months' rental is not uncommon.

For this reason many individuals are encouraged to take out redundancy protection insurance to protect them if they are forced to cancel their lease due to financial hardship.

Stay away from vehicle transfer agencies, says the Finance and Leasing Association.

The warning comes in the wake of figures showing that, despite warnings earlier in the year, consumers are still falling for smooth-talking salesmen.

The agencies promise to take over the repayments on a lease or hire purchase agreement on a car. But in about 90 per cent of cases the payments are not made.

The customer is left without the car and still owes money to the finance company.

The agency passes the car to a third party, who does not realise that the finance company owns the vehicle and is entitled to recover it.

The author is managing director of Stoy Benefit Consulting.

(Photograph omitted)

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