Why are Lease Deals Frowned Up Particularly on Prestige Cars

[DonkeyApple]

turbobloke said:

DonkeyApple said:

turbobloke said:

DonkeyApple said:

drainbrain said:

DonkeyApple said:

Dr Jekyll said:

Tractor lad said:

I always find the "I can invest elsewhere" argument amusing.
Can the financial geniuses suggest place to invest our healthy pot currently mostly in ISAs earning sweet FA? Many thanks.

+1

If that argument is correct, why bother with the car at all? Why not just borrow to invest?

Exactly. as I said earlier, that's a farcical justification as anyone who can obtain those types of yield would never need debt.

Maybe I'm not understanding something, but isn't that exactly what we who borrow for business purposes do? (borrow to invest).

Yes it is. That's the correct use of debt. However, debt markets work by lending at a rate above which people can generate yield for the same risk. That's how debt markets work. So the argument contrary to that couldn't be correct. And in the very few cases where it is then there ceases to be a need for debt for rather obvious reasons.

I may have got the wrong end of the stick after reading that reply, with drainbrain mentioning business use. Take a fledgling small business, a sole trader. The owner takes out £1000 cash on a card and immediately transfers the balance to an offer on another card. That £1000 is used as working capital to market (say) three events running on a 3 month cycle that the business will operate at a profit. The £1000 marketing and sundry planning costs will generate around £2000 profit per event although on the odd occasion one of the three events won't run. That's down to the judgemnent of the sole trader and doesn't happen often, but it happens. Most likely there will be ~£6000 in the business account after three months, occasionally £4000.

This can then extend to multiple locations say north, midlands and south at first. For £3000 in working capital there's ~£18,000 in the business account three months later. At times £2k less per event that doesn't run but this isn't a frequent occurrence. Before very long there's no need to use credit card cash advances and balance transfers followed by three month clearance of any remaining balance(s) as there's cash at bank. Then look at marekting NE NW E W SE SW.

Good use of debt or bad use of debt? The thing that makes me unsure which end of the stick I've got is the phrase 'yield for the same risk'.

Where would that fit in with over leverage on a depreciating asset and what relevance is that asset to this business?

We are where we are you replied to this point:

Maybe I'm not understanding something, but isn't that exactly what we who borrow for business purposes do? (borrow to invest).

And then I replied to that reply. That's all

But what is your point? What has someone using leverage to create a yield got to do with someone over extending on consumer debt financing non yielding assets?

[turbobloke]

DonkeyApple said:

turbobloke said:

DonkeyApple said:

turbobloke said:

DonkeyApple said:

drainbrain said:

DonkeyApple said:

Dr Jekyll said:

Tractor lad said:

I always find the "I can invest elsewhere" argument amusing.
Can the financial geniuses suggest place to invest our healthy pot currently mostly in ISAs earning sweet FA? Many thanks.

+1

If that argument is correct, why bother with the car at all? Why not just borrow to invest?

Exactly. as I said earlier, that's a farcical justification as anyone who can obtain those types of yield would never need debt.

Maybe I'm not understanding something, but isn't that exactly what we who borrow for business purposes do? (borrow to invest).

Yes it is. That's the correct use of debt. However, debt markets work by lending at a rate above which people can generate yield for the same risk. That's how debt markets work. So the argument contrary to that couldn't be correct. And in the very few cases where it is then there ceases to be a need for debt for rather obvious reasons.

I may have got the wrong end of the stick after reading that reply, with drainbrain mentioning business use. Take a fledgling small business, a sole trader. The owner takes out £1000 cash on a card and immediately transfers the balance to an offer on another card. That £1000 is used as working capital to market (say) three events running on a 3 month cycle that the business will operate at a profit. The £1000 marketing and sundry planning costs will generate around £2000 profit per event although on the odd occasion one of the three events won't run. That's down to the judgemnent of the sole trader and doesn't happen often, but it happens. Most likely there will be ~£6000 in the business account after three months, occasionally £4000.

This can then extend to multiple locations say north, midlands and south at first. For £3000 in working capital there's ~£18,000 in the business account three months later. At times £2k less per event that doesn't run but this isn't a frequent occurrence. Before very long there's no need to use credit card cash advances and balance transfers followed by three month clearance of any remaining balance(s) as there's cash at bank. Then look at marekting NE NW E W SE SW.

Good use of debt or bad use of debt? The thing that makes me unsure which end of the stick I've got is the phrase 'yield for the same risk'.

Where would that fit in with over leverage on a depreciating asset and what relevance is that asset to this business?

We are where we are you replied to this point:

Maybe I'm not understanding something, but isn't that exactly what we who borrow for business purposes do? (borrow to invest).

And then I replied to that reply. That's all

But what is your point? What has someone using leverage to create a yield got to do with someone over extending on consumer debt financing non yielding assets?

Because extending isn't over-extending and those assets may (or may not) create a yield directly or indirectly. The automatic assumption doesn't always work in a business context which is what I was reasonably sure drainbrain was referring to. Are lease deals not available to business users?

The matter of Prestige Car lease deals for personal use is a matter of personal choice at the end of the day.

[ORD]

DonkeyApple said:

But what is your point? What has someone using leverage to create a yield got to do with someone over extending on consumer debt financing non yielding assets?

Absolutely nothing. But it might fool a stupid person.

[turbobloke]

ORD said:

DonkeyApple said:

But what is your point? What has someone using leverage to create a yield got to do with someone over extending on consumer debt financing non yielding assets?

Absolutely nothing. But it might fool a stupid person.

They say confession is good for the soul.

Within my example, planning (and delivery) visits to chosen locations using a lease deal prestige car the cost of that will be part of the profit calculation. I was also showing how, beyond that, an entire shaboodle can be run very profitably in a business context using methods such as credit card cash advances that are a no-no within orthodox personal finance wisdom. A business context changes the picture entirely since a PAYE empoyee has little or no opportunity in the ways described for a self-employed businessman. They get their salary and pay their bills most often regardless how hard they worked or how successful that work was in a single month or three month period. Business isn't like that, in the same way that computer says no for orthodox reasons but computer is an idiot at times, and lease deals can be fine too in a non-boggo non-standard non-9 to 5 non-PAYE context.

[DonkeyApple]

turbobloke said:

DonkeyApple said:

turbobloke said:

DonkeyApple said:

turbobloke said:

DonkeyApple said:

drainbrain said:

DonkeyApple said:

Dr Jekyll said:

Tractor lad said:

I always find the "I can invest elsewhere" argument amusing.
Can the financial geniuses suggest place to invest our healthy pot currently mostly in ISAs earning sweet FA? Many thanks.

+1

If that argument is correct, why bother with the car at all? Why not just borrow to invest?

Exactly. as I said earlier, that's a farcical justification as anyone who can obtain those types of yield would never need debt.

Maybe I'm not understanding something, but isn't that exactly what we who borrow for business purposes do? (borrow to invest).

Yes it is. That's the correct use of debt. However, debt markets work by lending at a rate above which people can generate yield for the same risk. That's how debt markets work. So the argument contrary to that couldn't be correct. And in the very few cases where it is then there ceases to be a need for debt for rather obvious reasons.

I may have got the wrong end of the stick after reading that reply, with drainbrain mentioning business use. Take a fledgling small business, a sole trader. The owner takes out £1000 cash on a card and immediately transfers the balance to an offer on another card. That £1000 is used as working capital to market (say) three events running on a 3 month cycle that the business will operate at a profit. The £1000 marketing and sundry planning costs will generate around £2000 profit per event although on the odd occasion one of the three events won't run. That's down to the judgemnent of the sole trader and doesn't happen often, but it happens. Most likely there will be ~£6000 in the business account after three months, occasionally £4000.

This can then extend to multiple locations say north, midlands and south at first. For £3000 in working capital there's ~£18,000 in the business account three months later. At times £2k less per event that doesn't run but this isn't a frequent occurrence. Before very long there's no need to use credit card cash advances and balance transfers followed by three month clearance of any remaining balance(s) as there's cash at bank. Then look at marekting NE NW E W SE SW.

Good use of debt or bad use of debt? The thing that makes me unsure which end of the stick I've got is the phrase 'yield for the same risk'.

Where would that fit in with over leverage on a depreciating asset and what relevance is that asset to this business?

We are where we are you replied to this point:

Maybe I'm not understanding something, but isn't that exactly what we who borrow for business purposes do? (borrow to invest).

And then I replied to that reply. That's all

But what is your point? What has someone using leverage to create a yield got to do with someone over extending on consumer debt financing non yielding assets?

Because extending isn't over-extending and those assets may (or may not) create a yield directly or indirectly. The automatic assumption doesn't always work in a business context which is what I was reasonably sure drainbrain was referring to. Are lease deals not available to business users?

The matter of Prestige Car lease deals for personal use is a matter of personal choice at the end of the day.

I have absolutely no idea what point you are trying to make seeing as I agreed with the chap and you seem to be operating under the impression that I disagreed?

Why are you talking about £1k credit card loans to finance a start up in a conversation about leading prestige cars? It isn't debt that is the issue but over leverage and obviously big ticket consumables are more likely to be part of such an issue than base models.

[turbobloke]

DonkeyApple said:

I have absolutely no idea what point you are trying to make seeing as I agreed with the chap and you seem to be operating under the impression that I disagreed?

Lease deals are being painted as a waste of time and money, compared to renting, etc.

Lease deals and buying a car on tick can both be very profitable in a business context because they release (or keep as available) funds for profitable business use i.e. as working capital that would otherwiise be used up iand unavailable following a cash purchase. The substantial profit arising from use of working capital not used in an outright purchase is the point. Business context.

[swisstoni]

I couldn't care less if someone is leasing a 'prestige car' or have bought outright. Either way they have paid, or are paying through, the nose. Good luck to them.

[turbobloke]

DonkeyApple said:

Why are you talking about £1k credit card loans to finance a start up in a conversation about leading prestige cars?

The cash advance element was merely to demonstrate bootstrapping from a zero baseline - "if you have money to start with why not buy a nice car outright" - and how that particular no-no can sit alongside the lease deal no-no and work out extremely well financially (in a business context) against the view of received wisdom. Not getting any of it could be something to do with fools and stupid people as per ORD's failed one-liner but I wouldn't want to be quite that dismissive of people I don't know.

swisstoni said:

I couldn't care less if someone is leasing a 'prestige car' or have bought outright. Either way they have paid, or are paying through, the nose. Good luck to them.

Yes it's a matter of personal choice how to get rid of money.

[DonkeyApple]

turbobloke said:

DonkeyApple said:

I have absolutely no idea what point you are trying to make seeing as I agreed with the chap and you seem to be operating under the impression that I disagreed?

Lease deals are being painted as a waste of time and money, compared to renting, etc.

Lease deals and buying a car on tick can both be very profitable in a business context because they release (or keep as available) funds for profitable business use i.e. as working capital that would otherwiise be used up iand unavailable following a cash purchase. The substantial profit arising from use of working capital not used in an outright purchase is the point. Business context.

Not by me. So why not put your point to those that you disagree with?

[Tractor lad]

There seems to be an assumption that if you borrow business funds, you immediately make a profit on them, Total nonsense and the sinking of many high street names is a classic example of over leveraging a business. We have never borrowed, probably never will - we've grown our business "organically" (I do hate that word!) slowly and carefully into a useful enterprise. I'm sure many others have done far "better" but might be less risk averse which can be an advantage.

Depends on the business though but the way we run ours seems to work fine (I look after the finance side) although I'm brutal with overheads and keep them absolutely to a minimum.

As mentioned, I've run the business and personal leasing finance numbers through time and time and again and unless we want a bottom end Panda, the BIK tax is just a killer. At least some interesting stuff is coming through now - I must run the numbers for an i8 a some stage and maybe a Tesla. Anyone done this?

The most insane leasing/finance I've seen is on very slow depreciating cars like our old VW California - Cash was absolutely without any doubt the BEST way to run it - £11k depreciation in 3 years on a £53k (RRP) vehicle we paid £45k for. And that was sold in non p/x to a dealer!! We used it for work a fair bit but again the list price meant BIK was utterly nuts so we just claimed mileage on it.

[turbobloke]

Tractor lad said:

There seems to be an assumption that if you borrow business funds, you immediately make a profit on them, Total nonsense...

There was no such assumption here, which is why I sought clarification from DonkeyApple about the phrase 'yield for the same risk'. See post timed at 0816 hrs. Business is risky business. That doesn't affect any realistic illustration, but it needs to be kept in mind.

[anonymous-user]

Tractor lad said:

There seems to be an assumption that if you borrow business funds, you immediately make a profit on them, Total nonsense and the sinking of many high street names is a classic example of over leveraging a business. We have never borrowed, probably never will - we've grown our business "organically" (I do hate that word!) slowly and carefully into a useful enterprise. I'm sure many others have done far "better" but might be less risk averse which can be an advantage.

Depends on the business though but the way we run ours seems to work fine (I look after the finance side) although I'm brutal with overheads and keep them absolutely to a minimum.

As mentioned, I've run the business and personal leasing finance numbers through time and time and again and unless we want a bottom end Panda, the BIK tax is just a killer. At least some interesting stuff is coming through now - I must run the numbers for an i8 a some stage and maybe a Tesla. Anyone done this?

The most insane leasing/finance I've seen is on very slow depreciating cars like our old VW California - Cash was absolutely without any doubt the BEST way to run it - £11k depreciation in 3 years on a £53k (RRP) vehicle we paid £45k for. And that was sold in non p/x to a dealer!! We used it for work a fair bit but again the list price meant BIK was utterly nuts so we just claimed mileage on it.

Did you own a VW California? It's just that you've never mentioned it before

[Tractor lad]

St John Smythe said:

Did you own a VW California? It's just that you've never mentioned it before

Pot
Kettle
Black

[drainbrain]

turbobloke said:

The matter of Prestige Car lease deals for personal use is a matter of personal choice at the end of the day.

The thing is, for business people buying that prestige personal car with cash involves withdrawing cash from the business either as drawings or dividend which then creates a taxable event which should really be factored into the equation (on top of the opportunity loss/cost to the business of not investing said cash somewhere income generating). This can also create obvious issues for businesses which aren't sole trader/one man bands.

[anonymous-user]

Tractor lad said:

St John Smythe said:

Did you own a VW California? It's just that you've never mentioned it before

Pot
Kettle
Black

lol

So what have I mentioned I own all the time? Have you even looked at my car history?

[culpz]

I've never understood why people feel the need to give a care in the world about how someone else decides to fund a car. This is 2015. There are many options to suit different people's situations and general preferences on doing this. Why is this considered a bad thing? You shouldn't have to justify yourself. There are pros and cons to whatever route you decide to take. There is no right or wrong answer.

[theboss]

Tractor lad said:

As mentioned, I've run the business and personal leasing finance numbers through time and time and again and unless we want a bottom end Panda, the BIK tax is just a killer. At least some interesting stuff is coming through now - I must run the numbers for an i8 a some stage and maybe a Tesla. Anyone done this?

If you do, just be mindful that the 5% BIK rate on EVs is going up sharply year on year so if you lease something now you'll pay 7% next year, 9% the year after and so on.

Crazy really as I should think that at these rates, in 5 years time *nobody* will have a company car.

[lostkiwi]

culpz said:

I've never understood why people feel the need to give a care in the world about how someone else decides to fund a car. This is 2015. There are many options to suit different people's situations and general preferences on doing this. Why is this considered a bad thing? You shouldn't have to justify yourself. There are pros and cons to whatever route you decide to take. There is no right or wrong answer.

^^^this^^^

I've paid for my last 9 cars with cash and can't see I'd do it any other way now.
My other half pays for hers with a PCP. Suits her needs and its her money so she can do what she wants.

[Tractor lad]

theboss said:

If you do, just be mindful that the 5% BIK rate on EVs is going up sharply year on year so if you lease something now you'll pay 7% next year, 9% the year after and so on.

Crazy really as I should think that at these rates, in 5 years time *nobody* will have a company car.

Basically cars + business = doom.

My dad used to buy his best sales people (and himself) a new GTI or whatever with spare company cash as a reward. No way that would ever happen now.