New Cars - is Leasing going to become the new norm?

[r11co]

daemon said:

nicanary said:

What happens when you retire and you're on a much lower income? Where does the cash come from to buy the retirement car?

From all the money you saving on not suffering massive depreciation on new cars?

I think the point has been made in the thread already. You are still paying the depreciation, just in a more controlled way.

[r11co]

ATG said:

And what about the impact on the economy? Leasing increases economic activity in the short term at the expense of carrying more debt. Growth versus risk.

Yeah, and look how well that's going in certain economies!

[grimmac]

drainbrain said:

It's amazing the number of people who don't understand how it works with property. Basically, grandfondo and you buy identical houses. Him on repayment you on interest only. 10 years later you both sell them. He pockets more equity. The amount of 'more' is exactly the amount of capital he paid off. So he made an interest free investment of his own money which he got back with no profit. Plus he lost the opportunity use along the way of the money he used for capital repayment.

Incredible, innit?

Incorrect.

Interest only mortgage, each and every month you will pay interest on the full amount borrowed.

Repayment mortgage, each month you pay interest on the amount you owe at that particular time. Your repayments reduce the overall debt, which means the interest payable reduces.

So its not an interest free investment with no profit, the profit is the difference between the interest on the mortgage and the return available if the repayment amounts had been invested elsewhere.

[Truckosaurus]

wemorgan said:

Typically the lease company are just the brokers, the cars are retailed by the OEM's own financial company.
It's therefore reasonable to assume that they do not pay RRP for their own vehicles.

Indeed. That's the point I was trying to make. If the finance co is only paying 50% (or whatever) that the General Public is paying you can see where there is a saving of thousands of Pounds worth of tax/VAT that be used to make the lease deal cheaper.

[Gio G]

dave_s13 said:

daemon said:

Gio G said:

A very big disadvantage of leasing is if your car is stolen or written off within the first few months of ownership.

My experience is that my hot Golf R deal ended up costing allot more than I hoped. Chances of it happening is low, however PCP with GAP negates that risk.. Those big upfront payments will never be insured, unless someone introduces new products to the market..

G

You can get GAP insurance or leasing.

Not in the scenario G found himself in you can't.

Take out lease, pay down £2000 initial payment. Car delivered on the Monday, stolen on the Tuesday. Insurance settles with lease company to value of car but the initial 2k is lost to the ether, and you have no car.

Cost you 2k to drive the car for 24hrs.

Thanks Dave - people will gloss over this point, until it happens to them. Remember, when leasing, you have no financial interest in the car. If the car is stolen or written off, you have no rights, as you are merely renting. Is it a risk worth taking? many would to get a low monthly payments. I would rather pay extra on a PCP+GAP knowing I could get a brand new car in the unlikely event. GAP on my lease only benefited me by paying the excess on the insurance, otherwise it was useless!

I unfortunately learned the hard way. My Golf R ended up costing me £800 a month, up to the time it was stolen! Before you take out a lease deal, ask the "what if" question first...

G

[t4thomas]

RYH64E said:

In practice that's just not true. I like to buy outright and have bought myself a new Elise this year, but sometimes lease deals are cheaper than outright purchase. For instance my main car is an E350, £46k to buy or <£10k (inc VAT) for a 2 year lease. No risk, no money tied up, no trade in or selling hassle, and the car would have to depreciated by less than 21% over 2 years for buying to be cheaper.

I understand the risk, money tied-up, trade in point; That is an obvious benefit of leasing but it's also one that you pay for. That said, it's certainly possible to be better off leasing e.g.

1. The manufacturer is significantly discounting to lease companies.
2. The leasing company has got their maths wrong.
3. The car you lease happens to be worse than average reliability for that make/model.

I'm sure there are lots of other examples involving insurance for high risk individuals, black swan events etc. However, I suspect the 46K example you've given is not like for like e.g. you can get a basic E350 for less than 46K, or the 46K example could not be leased for the same price.

Don't get me wrong, I totally understand why people lease.

It's just that for me, it doesn't make as much sense as continuing to run my eight year old ex-demonstrator Civic into the ground.

[Justin Case]

As nearly all new cars are just domestic appliances and are 'got' to do a job, whether it's motorway mile-munching from one pointless meeting to another or herding small people to school, whether the car is bought or leased is irrelevant.

The only criteria really is what is the best deal, taking into account not only the financial side but your attitude to risk, ie how you allow for uncertainties. The only pattern that I can find is that a small cheap car will cost less than a large expensive one, no matter how obtained, but that is hardly Nobel Prize economics

[WestyCarl]

Justin Case said:

As nearly all new cars are just domestic appliances and are 'got' (bought or leased) to do a job, whether it's motorway mile-munching from one pointless meeting to another or herding small people to school, whether the car is bought or leased is irrelevant.

The only criteria really is what is the best deal, taking into account not only the financial side but your attitude to risk, ie how you allow for uncertainties. The only pattern that I can find is that a small cheap car will cost less than a large expensive one, but that is hardly rocket science

Agree, I'm kind of old fashioned and always purchase (with a bank loan, shock horror!!!) about the only criteria I make is that the loan value is always less than the car value so I'm never in negative equity. Seems to work as after 3 yrs I have a reasonable deposit for another car if I want, or "free" motoring.

No idea whether it's cheaper than pcp or lease, but works for me.

[untakenname]

Being able to lease a 3 series or an A6 for £225 per month must surely at some point impact on the perceived value of "prestige" car manufacturers?

My friend has a Golf R (24 month lease) and does full bore launches from cold even in sub zero conditions in the winter and in the heat atm drives it hard then turns it off without driving gently for the last few minutes/miles of the journey, it's painful to hear the contracting metal noises under the bonnet whilst the fans spin away on full blast for the next five minutes.

For him the best thing about leasing is that he doesn't have to have any mechanical sympathy for the car whereas with his previous car (a wrx) he would change the oil regularly, drive around gently for half his commute warming it up first then driving the last few minutes off boost to prolong the turbo life .

I feel sorry for the next owner as they are going to buy a two year old car with 15k on the clock which is probably in worse condition engine wise than one that's been treated nicer but is at 100k.

Leasing makes sense whilst interest rates are at record lows but for me there's something about owning the car that you drive.

[philmots]

clarki said:

I've been PCP'ing my everyday car for years (currently an Evoque). Think i'll lease next time (fancy a 5 series next). I don't want to own it, just want a nice, modern, reliable, comfy car that gets changed every 3 years and costs what it says on the tin. Never going to get attached to the thing.

My weekend car I buy. It tends to be a bit older, something I can tinker with, something I want to own and I do tend to get attached to.

Horses for courses I guess.

This is where I'm at 100%

Although I currently have a Clio on lease, doesn't get much cheaper and adequate for the family.

Odd occasion we need that bit more space we take my toy (550i Touring)

Win win

[LittleEnus]

The thing nobody seems to bear in mind is the initial fee/ contribution. Yes the E class may be £300 a month but typically you will put down a £2k deposit which is dead money and will do this every 2/3 years too. There is also the limited mileages and the terrifying moment you hand a lease car back and it isn't absolutely perfect. These are all fringe costs and should be taken into account.

Finally all the really attractive prices are for business users and exclude VAT.

It really is a case of overlooking certain key facts to make it seem even cheaper. I personally live within my means. I went from a V50 on lease to a £2k 728i. Within a year I'd paid for it and it owed me nothing and went on to sell it a few years later for £1300. Both those prices are less than the contribution/ deposit.

Having the latest, newest, whiteist car on the drive for me represents everything that is going wrong in the world. People living above their means and not giving a toss about saving or their future. Personally I'm looking forward to the interest rates going up. People need a reality check in my opinion.

Appreciate I will probably wind a few people up with that..

[chrispmartha]

LittleEnus said:

People living above their means and not giving a toss about saving or their future. Personally I'm looking forward to the interest rates going up. People need a reality check in my opinion.

This is the bit I totally disagree with. Someone leasing a car for £200 per month does not automatically equate to living above their means and not saving for the future, I'm not sure how you can just assume thats the case.

Cars that people use as everyday tools are just that, tools, a mode of transport to get from A to B, a lot of people need that tool to be hassle free, cheap and budgeted within their monthly outgoings, the fact that this is now possible for a lot of people with good lease/PCP deals doesn't mean that everyone is being irresponsible and living above their means, in fact most people are probably living well within their needs and just see the car as another monthly payment which is worth it for it to be hassle free.

It really does amaze me why people care how they pay for their transport.

Most people (non car enthusiast) done want the hassle of driving round in a depreciating asset that will cost them in maintenance every year, a lot of people on here will be different but I'm not sure why some think that driving round in a £1,00 shed is some kind of badge of honour.

Personally I lease a car for my business, its a toll, I've no interest in owning that depreciating asset at this point in tim, I'm not living above my means and leasing a car for 24 months in no way makes any difference to my future.

[wemorgan]

LittleEnus said:

The thing nobody seems to bear in mind is the initial fee/ contribution. Yes the E class may be £300 a month but typically you will put down a £2k deposit which is dead money and will do this every 2/3 years too. There is also the limited mileages and the terrifying moment you hand a lease car back and it isn't absolutely perfect. These are all fringe costs and should be taken into account.

If you read the main lease thread on this forum then the above is well understood by most members. Most people display the total lease costs over the whole term.

The £2k (or whatever) is not a deposit, but the 1st monthly lease payment. It's not dead money but just a part of the total lease costs. Most lease co. can quote for 3+23 if you prefer, some are even 1+23.

The fair wear and tear agreement booklet clearly describes what is and isn't acceptable.

Mileage allowances are as transparent as they can be. 5k, 8k, 10k, 15k, 20k quotes are easy to obtain.

[RYH64E]

LittleEnus said:

The thing nobody seems to bear in mind is the initial fee/ contribution. Yes the E class may be £300 a month but typically you will put down a £2k deposit which is dead money and will do this every 2/3 years too. There is also the limited mileages and the terrifying moment you hand a lease car back and it isn't absolutely perfect. These are all fringe costs and should be taken into account.

Finally all the really attractive prices are for business users and exclude VAT.

It really is a case of overlooking certain key facts to make it seem even cheaper. I personally live within my means. I went from a V50 on lease to a £2k 728i. Within a year I'd paid for it and it owed me nothing and went on to sell it a few years later for £1300. Both those prices are less than the contribution/ deposit.

Having the latest, newest, whiteist car on the drive for me represents everything that is going wrong in the world. People living above their means and not giving a toss about saving or their future. Personally I'm looking forward to the interest rates going up. People need a reality check in my opinion.

Appreciate I will probably wind a few people up with that..

The example I quoted for an E Class (E350, Premium Plus) was the deal widely discussed on here 9 months or so ago, 6+23 £287+VAT per month, or 29*287*1.2= £9987.60 total including VAT.

I prefer new cars, I don't trust the latest generation diesels when out of warranty, and I usually prefer to buy outright, but sometimes leasing is the better and cheaper option.

[nicanary]

MitchT said:

nicanary said:

daemon said:

nicanary said:

What happens when you retire and you're on a much lower income? Where does the cash come from to buy the retirement car?

From all the money you saving on not suffering massive depreciation on new cars?

Because depreciation is "paper" money. You don't actually have to find that money from your resources. The temptation with leasing is to get a car which is the most you can afford, and this will leave nothing towards the future. No savings = no car when your income drops.

Slightly OT, but related in a financial sense, this is going to be an issue with housing. People who've never been able to afford to buy their own home and pay it off by the time they retire will basically never be able to retire because they'll have to continue funding rent on top of the other bills. I can see this being a huge problem in the UK in decades to come. Anyway, as you were ...

I don't want anyone to think I'm knocking lease deals - they suit some people. I do 25/30k a year, so it's out of the question for me. But society has changed - nobody saves any more, and few people have adequate pension provisions. Personal debt is higher than ever, and nobody seems to worry about it.

If a 40-year old person leases a car at £300 pm, they will also have to save £100pm for 20 years, so when they retire at 60 they have £24k to buy a car, probably the equivalent of a base model Ford Focus. Unless of course they have such a large income on retirement that they can continue to lease.

If you rent a house, and have limited income, the Gov pays you housing benefit. They won't pay for your car.

[chrispmartha]

nicanary said:

If a 40-year old person leases a car at £300 pm, they will also have to save £100pm for 20 years, so when they retire at 60 they have £24k to buy a car, probably the equivalent of a base model Ford Focus. Unless of course they have such a large income on retirement that they can continue to lease.

that's too simplistic. If they own a car and keep it for 10 years, how much will it be worth? not enough to get them a new car if they sell it. How does buying a car outright mean you won't have to buy a car when you retire? in the situation you describe the retiring person, if they want a new car will still have to find the difference from what their old car is worth to what the new one is worth.

And what's stopping the retiring guy buying a shed to drive when he's retired? he certainly doesn't need £24k

Cars depreciate, massively, buying one outright is not automatically the sensible option.

[nicanary]

chrispmartha said:

nicanary said:

If a 40-year old person leases a car at £300 pm, they will also have to save £100pm for 20 years, so when they retire at 60 they have £24k to buy a car, probably the equivalent of a base model Ford Focus. Unless of course they have such a large income on retirement that they can continue to lease.

that's too simplistic. If they own a car and keep it for 10 years, how much will it be worth? not enough to get them a new car if they sell it. How does buying a car outright mean you won't have to buy a car when you retire? in the situation you describe the retiring person, if they want a new car will still have to find the difference from what their old car is worth to what the new one is worth.

And what's stopping the retiring guy buying a shed to drive when he's retired? he certainly doesn't need £24k

Cars depreciate, massively, buying one outright is not automatically the sensible option.

I get your point. I'm dubious whether someone who's been driving something classy for the last umpteen years will be happy buying a shed for the rest of his life.

I don't get knocked by depreciation - I buy a 1-year old car with lowish mileage and known provenance, keep it 3 years, and then trade in for another. No cash added. At retirement I will either keep it and run it into the ground, or trade in for a small city-car. I've never owned a car more than 4 years old, and I don't feel any sort of need to buy a new one anyway. The cars I buy are still under warranty.

[chrispmartha]

nicanary said:

I get your point. I'm dubious whether someone who's been driving something classy for the last umpteen years will be happy buying a shed for the rest of his life.

I don't get knocked by depreciation - I buy a 1-year old car with lowish mileage and known provenance, keep it 3 years, and then trade in for another. No cash added. At retirement I will either keep it and run it into the ground, or trade in for a small city-car. I've never owned a car more than 4 years old, and I don't feel any sort of need to buy a new one anyway. The cars I buy are still under warranty.

Fair enough, I'd like to know how you buy a 1 year old car, keep it for 3 years then trade it in for another 1 year old car without adding any cash though?

[8bit]

LittleEnus said:

Having the latest, newest, whiteist car on the drive for me represents everything that is going wrong in the world. People living above their means and not giving a toss about saving or their future. Personally I'm looking forward to the interest rates going up. People need a reality check in my opinion.

Your argument is flawed. Plenty of people lease cars they actually want rather than the latest, whitest, shiniest German luxo barge. Your problem is with the motive with which some people choose their cars, how they go about paying for the car is coincidental.

Personally I see both sides of this but I don't see why people get so het up about it. I prefer to own my car because it's mine, I can do what I want with it, drive as much as I want etc. My wife has the "family" car, currently a Merc ML320. Today it's back at the garage for about the 9th time since we bought it a year ago and we're very glad we've got approved-used warranty on it. So as much as I prefer to own my own car, for the family one I can see the benefit in leasing.

My worry is that we'll get (further) into this trend where cars are built to last for the duration of the first lease - so they don't cost the manufacturer in warranty claims while under the first lease, but make the manufacturer money in spare parts for people who pick them up at 3 years old or whatever on the used market.

[Durzel]

9mm said:

I've never understood how someone can identify the status of a driver and the ownership of a car just by looking at it as it's driven about. I see a car on the road, it's just that, a car, unless it's been driven badly in which case I might take an interest in the driver. The driver could own it, lease it, be borrowing it, repairing it, selling it or have stolen it. However, if I see a new car on the drive of a st house, I think it belongs to a visitor or it's leased. That's what I think. I can't say I care. I suppose you can fake a bit of status with a £299 monthly lease. It's a bit harder to do with a million pound house.

Edited by 9mm on Monday 29th June 08:30

All true. I never said it was logical