To Lease or not to Lease

To Lease or not to Lease

Author
Discussion

joestifff

Original Poster:

484 posts

53 months

Tuesday 15th October
quotequote all
I cannot for the life of me get my head round this. I think it is because I am fairly risk averse.

I currently have a 2016 GTD estate, it is a nice car, but come January I will be doing less mileage. I am finding the GTD a bit small, plus I am not a fan of diesels.

I bought it 18 months ago using savings and a loan, which has 23 months left and is more monthly than the prospective straight lined lease payments.

I have seen a deal I can get for an A4 Avant 40 TFSi Black Edition. in the colour I want too! Basically for £380 month straight lined, for 3 years.

So theoretically, I can sell my Golf, pay off the loan, be no worse off cash flow each month, not have to worry about warranty or RFL, but about return conditions, excess mileage etc.

Financially, the current loan is not an issue, we as a family are not struggling financially, spare cash end of the month etc, jobs as secure as can be in the current climate.

The only plan we have is to move in 2-3 years. But either way I would have probably traded in the golf by then to buy something else, and extended the loan possibly.

We have two young children.

For some reason, I cannot get my head round that although not financially better or worse, I would have a new more superior car on my drive for the same outgoings! As you can tell I have never leased before.

I really don't know what to do! Never been so indecisive about something in my life!

Sarnie

6,215 posts

156 months

Tuesday 15th October
quotequote all
"I would have a new more superior car on my drive for the same outgoings!"

......but have no ownership of the car. You currently own your current car.......once the loan is repaid will be costing you nothing......which you could sell and recoup funds back.

One of the issues with leasing I've come across as a Mortgage Broker is that clients can't end the agreement even if they wanted to give the car back and pay up the agreement in full......it seems the lease companies just simply said that wasn't possible....

joestifff

Original Poster:

484 posts

53 months

Tuesday 15th October
quotequote all
Sarnie said:
"I would have a new more superior car on my drive for the same outgoings!"

......but have no ownership of the car. You currently own your current car.......once the loan is repaid will be costing you nothing......which you could sell and recoup funds back.

One of the issues with leasing I've come across as a Mortgage Broker is that clients can't end the agreement even if they wanted to give the car back and pay up the agreement in full......it seems the lease companies just simply said that wasn't possible....
And I think this is the crux of my thinking. Not the lack of ownership, I am not bothered by that, but the ability to recoup anything AND more importantly to me, the ability end an agreement.

Fitting that you reply, as if a house came along, and we just missed it due to affordability I would be furious.

And the first line in your quote makes me sound a bit pretentious, which I am a smidge embarrassed about.

Thanks Sarnie, good to have your input.

I presume a more financial sensible option is to buy second hand, as I have prior, I have mentioned in previous threads I am not a fan of owning new cars. But you cannot argue that leasing does seem to be easier on the old monthly outgoings!!

otherman

1,840 posts

112 months

Tuesday 15th October
quotequote all
So you pay out £13,680 and at the end of three years you own nothing? I really don't get these deals. It's just such an expensive way to run a car. I think you did right with the Golf last time.

joestifff

Original Poster:

484 posts

53 months

Tuesday 15th October
quotequote all
otherman said:
So you pay out £13,680 and at the end of three years you own nothing? I really don't get these deals. It's just such an expensive way to run a car. I think you did right with the Golf last time.
I agree, scary numbers.

However, I dare say that over a three year period, my Golf will have devalued by around £8,000, as by then it will be nearly five years old with 80,000+ miles on it. Add in a few hundred quid in RFL, and possibly a bit of money on out of warranty repairs, and although not up to £14,000 spent, I bet I can hit £10,000 spent easily! Add to that the shocking price I will get at trade in, or having to deal with idiots on eBay, Autotrader etc, I am sure I am not far off!!

Obviously if I had bought an older Golf initially, these figures would be lower.

Sten.

1,176 posts

81 months

Tuesday 15th October
quotequote all
otherman said:
So you pay out £13,680 and at the end of three years you own nothing? I really don't get these deals. It's just such an expensive way to run a car. I think you did right with the Golf last time.
It's only an expensive way if the car will depreciate by less than the lease cost over the same term. There are good and bad lease deals exactly like cash deals, you need to shop around, do the sums and decide what is best for you. Some people value having their name on the V5 over saving a few quid by leasing, fair enough, each to their own.

Having a brand new car every 2/3 years will always be expensive, but leasing it's often the least expensive way of doing it.


PugwasHDJ80

7,048 posts

168 months

Tuesday 15th October
quotequote all
I've just swapped from owning to a lease.

I bought a 2 year old Jeep grand cherokee for 26k. I did roughly 40k miles and sold it at 5 years old for 13k. I put in 2k, and it cost me roughly £800 in interest.

At the point i sold it it needed £1k in tyres and servicing.

So the numbers are

Loss on car (paid for by a monthly loan) £13k
Interest £800
Maintenance over the three years £1.8k (servicing, new tyres, repairs etc)
Road fund- £720

Total cost to me £16.1k over three years- £5.1k per year

I've replaced it with a brand new Volvo V90 Cross Country (roughly the same list price- circa £52k) on a lease.

Deposit - £990
Lease £332/month for 36 months- £11,952
Maintenance- £1.1k (one set of tyres, one interim service and one major)
Road fund- included

Total cost to me £14k over three years- £4.6k

So it saves me £500 per year, i have a brand new car and no risk of major repairs as its under warranty.

I am committed for three years, but i get a car allowance and have been employed for 8 years in the same job, so it doesn't seem like too much of a risk!



Scootersp

1,059 posts

135 months

Tuesday 15th October
quotequote all
Sten. said:
Having a brand new car every 2/3 years will always be expensive, but leasing it's often the least expensive way of doing it.
This is true and people quoting their experiences of buying vs leasing over 2-4 years make a good case for leasing. I would say if you are changing cars every 3 years for new or nearly new then you are reasonably wealthy as it is expensive however it's paid for.

For the op or anyone really, crunch numbers for 3 years but then do it for 6 and then 9. At nine years the golf will still be an ok car, but you'd have done 3 expensive Audi lease cycles.

So it comes down to the value you place on newness, leases make money and they are marketed well to give this better value truth/perception, and when the lease ends you are faced with another decision where it's difficult to break from the path you chose before?

Same with hp type agreements with a ballon, after x years you can buy it but the payments are the same for another x years as they are for a brand new one again, a hard choice for many to pay the same for an older car. You only gain once the finance ends generally, then you can save the £3-400 a month for a time.

There are few/no deals for new/nearly new cars that involve finance where at the end you are done, ie 8 year deals etc, as the dealers want a mid point trigger to give you that 'choice' that nearly always means you become a customer once again.

Cars are expensive, new cars are very expensive, all the deals are trying their best to obscure it!

Choose what you like just keep those eyes wide open!

Scootersp

1,059 posts

135 months

Tuesday 15th October
quotequote all
OP

Keeping the Golf 24 months of say £500 per month is £12,000 then in the 12 months after you could save 12 x £500, so £6,000 down.

Get the Audi 36 months spend £13,680 save £4,380 (36 x £120), £9,300 down.

Not a huge difference....

If you went another 3 years.

Golf 36 further months saving £500 £18,000 up.

Audi a further £9,300 down

I think that's right!?


trowelhead

1,586 posts

68 months

Tuesday 15th October
quotequote all
Keep the golf until paid off then take another small loan and buy the A4 in 2 years time?

Or you can buy pre owned 2017 A4 black edition avant for £22k - with a larger loan - either way you'll be better off in 2/3 years than leasing.

(big fan of the a4 avant black editions btw i can see why you fancy one! Handsome looking things imo)


OP - if you are comfortable posting your cars mileage now, your annual milage going forward, current loan balance and apr i can probably make a little spreadsheet showing how these various scenarios would look in 1/2/3 years etc




Edited by trowelhead on Tuesday 15th October 18:29

DonkeyApple

34,843 posts

116 months

Tuesday 15th October
quotequote all
As far as I’m concerned there is nothing wrong with leasing and plenty beneficial so long as you appreciate that the purpose of shifting someone onto a monthly rental plan for something shiny and new is to get them to spend more than they would do if they were sliding hard earned, cold cash across the table.

You’re basically paying three years of max depreciation plus financing the lend but that isn’t a bad thing, it’s about making sure the deal offered works for you and that you don’t fall into the obvious trap of adding those extra £10/month for £1 of gain.

I think the key with leasing is to not step out with the intent of procuring the vehicle that you want but rather the intent of taking advantage of what the industry is currently needing to shift. That keeps you focussed more on the money and the value and reduces the risk of thinking with your heart.

From a personal perspective, of looking to make a change to the way I run a car I would run the numbers on what I would typically do and break that down to an estimated monthly cost and then see what suitable cars are available to rent for that similar sum. I feel that would give a clear picture as a starting point.

There are lots of downsides to leasing but almost all of them are directly linked to using the seemingly small monthly costs to end up with something that is bigger risk. For example you can’t easily exit a deal nor do you have any asset should the need arise but if you have good savings, stable employment and generally the means to handle life’s typical shocks without the need to turn to your car then those risks are pretty irrelevant.

Likewise, the issue of having to look after a lease car is arguably more of an issue to someone who doesn’t or doesn’t intend to look after their car regardless of how they gain access to it.

Having nothing to show at the end of three years doesn’t matter if you’ve rented something prudent and saved on other associated costs and the vagaries of selling etc.

In short, renting a prestige wagon when you live in a rathole and have no savings and a risky income is ticking a lot of moron boxes. But renting a modest runabout on a good deal and locking in expenditure while the monthly cost doesn’t impinge on how you live and you have good savings and a good job probably makes you eligible to give a Saturday service in Golders Green. biggrin

roadsmash

1,208 posts

17 months

Wednesday 16th October
quotequote all
These threads very quickly get out of hand so OP DING DING DING you’ve won a completely impartial pros/cons list that summarises everything for you. Lucky you. wink

These points all relate to BRAND NEW CARS only and I haven’t included any points that are associated with new cars e.g. full manufacturer warranty, as that’s a given. Used cars are a different debate entirely.

Pros of leasing (PCH):
Flexible deposit options and can be as low as nothing... i.e. no money down;
Generally offers the lowest monthly payments;
RFL (car tax) is usually included within the payments;
No residual value to worry about;
A lot of credit agencies only show/see the outstanding contract balance (total payments) on your credit report.

Cons of leasing (PCH):
The car is not yours to sell so you cannot get out of the agreement early very easily, you CANNOT VT like with a PCP. Typically 50% or more (depending on the provider) of the remaining monthly payments are required to be paid in order to terminate the agreement and hand the car back;
Mileage cap which is chargeable per mile if exceeded;
Naturally, as the car is never owned, repetitively leasing for 10+ years on different cars will result in a lot of money being spent with nothing to show for it at the end.

Pros of personal contract purchase (PCP):
Flexible deposit options and can be as low as nothing... i.e. no money down;
Car is usually yours to sell providing the finance is paid off beforehand;
Providing 50% of the total amount repayable (incl interest) has been paid then you can hand the car back no questions asked (mileage cap pro rata still applies);
Optional final payment (balloon) is all that is required to be paid at the end of the agreement to own the car (this can also be refinanced if required);
Excellent deals can be had as it is a very popular method of financing;
A decent lender can vary the deposit and optional final payment to reach a desired monthly payment.

Cons of personal contract purchase (PCP):
Monthly payments tend to be higher than leasing due to the way the car is financed and the added flexibility too;
Mileage cap which is chargeable per mile if exceeded;
Because this is a purchase agreement, an interest rate applies which if unchecked, can be quite high;
Possible to find yourself in negative equity at any point through the agreement.

Pros of hire purchase (HP):
An easy to understand agreement, the full value of the car plus interest is payable and spread typically over 3/4/5 years;
A deposit can be incorporated to reduce the monthly payments;
The car will be owned outright as soon as the last monthly payment is made.

Cons of hire purchase (HP):
Monthly payments are the highest due to the full value of the car typically being financed;
Negative equity is a real risk especially if a large deposit is not incorporated into the purchase;
Can have relatively high interest rates if homework is not done;
Due to the length of the agreement, typically you can still have 2 years worth of payments still to make without a full manufacturer warranty in place.

Pros of a cash purchase:
The car is owned outright and can be modified if desired;
You belong in a very elite club... not many people buy brand new cars with cash.

Cons of a cash purchase:
The average person will be tying up their spare cash in a rapidly depreciating asset. Not a major problem for the super rich, but not a wise investment for someone using a large portion of their savings to buy the car.

ChocolateFrog

6,400 posts

120 months

Wednesday 16th October
quotequote all
Sounds like you're not discounting the future value of the golf from your monthlies. It will be significantly cheaper once you factor that in.


dodsi2000

27 posts

19 months

Wednesday 16th October
quotequote all
Leasing can be very good value, once you have fully understood the total cost of your motoring and you fall into the sweet spot for leasing (imho 8-15k miles pa).

When leasing was first suggested to me by a very financially savvy friend whose opinion on most things I regard highly I scoffed. In his classic way he said ‘do the maths’. So I did.

I was running a 2/3 year old Honda Civic 2.2 diesel at the time that I ‘owned’ (read financed on a good apr bank loan) paid 10k for the car main dealer with warranty (which it had a clutch, paintwork and some other bits done on so these are NOT included in any calculations). Sold it for £3500 at the end of the 3 years and 40k I had it @ 5/6 years old. It had services, tyres x 6, MOTs, brake discs and pads all round and a minor air conditioning fault.

To make the story shorter, over the same (2 year equivalent) time period a brand new 2016 Skoda Superb 2.0 tdi SE technology on a fully maintained lease @ 10k pa was going to be just shy of £7k amortised.

The maths stood up, over the same period of time the lease was less money by a few hundred quid and arguably I had a better car. Well, I liked it and having just handed it back after extending the lease for a further year. We have since leased a Volvo V90 diesel to replace the superb.

Leasing is working well for us so far, but this is because my wife commutes the miles daily.

My commute is a handful of miles through town, and it’s handy to have a car that we can park in supermarkets etc and give no chuffs about. For that reason I have a 2006 Toyota Avensis petrol that cost £1000 and run on a shoe string budget.

TLDR I have found bangernomics or leasing to be the most cost effective options for motoring and everything in between to be not really worth it*

  • if you are using a car like a white good.

mfmman

637 posts

130 months

Thursday 17th October
quotequote all
Another view based on the deals that can sometimes be obtained in this period of low interest rates

Looked at various new cars for my wife. Notable about the MINI offering was that (using very rough figures) the actual cost of finance amounted to about £1500 over a three year term. The final balance was about £7.5k. A three year old MINI from a MINI dealer to the same spec was about £10k

I could afford the final payment without impacting on savings to a level I wouldn't accept. I could afford the monthlies. Buying in this way would give me the opportunity to 'buy' a three year old car at significantly lower cost than the usual dealer price. I could have bought outright but it would have impacted on savings to a level I wouldn't accept.

The finance offer was slightly more expensive but gave me a risk averse way of buying the car and eventually having a car at three years old at a lower cost with a known history (this only works if you want to keep the car, we usually keep our second car for six/seven years)

Short summary, one car for six years can be cheaper than two lots of three but doesn't need you to pull out twice as much money

Of course with all that in mind I have just bought a two year old Focus laugh

Scootersp

1,059 posts

135 months

Thursday 17th October
quotequote all
dodsi2000 said:
TLDR I have found bangernomics or leasing to be the most cost effective options for motoring and everything in between to be not really worth it*

  • if you are using a car like a white good.
I get that view... It's certainly the least risk/highest security of having known costs, one is covered under warranty and new so 'should' be hassle free in the main and the other is so low cost that you'd need a run of bad luck to get really hammered financially.

If you aren't bothered about things being new new, then leasing (whilst better/less hassle over a fixed term in many cases compared to buying then selling) just highlights how expensive a new car is full stop. Owning a new car to 6 years will always work out more favourably than a lease or three I'd think? but the marketing is clever as people tend not to stick with a car that long. Your friend hasn't been duped as such as in the defined terms is a money saving, but conversely someone could do a 6 or 9 year scenario on a much nicer car and it cost same/less than x3 leased ok hatches? People selling stuff will always spend time making sure their pitch looks as good as possible within their business model.



Scootersp

1,059 posts

135 months

Thursday 17th October
quotequote all
ie very roughly 2010 BMW 320 D around £25K (£20K with no options) and now with 90K miles worth £3-5K

So £15-22K cost.

Corsa 36 month private lease with 10K per annum approx £20K for 3 x 3 year leases?

Ok so no mot's servicing ved etc and more expensive consumables, but the BMW might well have achieved better fuel savings and the Corsa's had x3 lots of potential return charges for scratches/scrapes, besides I'm not making a exact claim just that if the above two methods were cost equivalent, and it seems they are close, then I think most (certainly on here) would chose the BMW?



trowelhead

1,586 posts

68 months

Thursday 17th October
quotequote all
DonkeyApple said:
As far as I’m concerned there is nothing wrong with leasing and plenty beneficial so long as you appreciate that the purpose of shifting someone onto a monthly rental plan for something shiny and new is to get them to spend more than they would do if they were sliding hard earned, cold cash across the table.

You’re basically paying three years of max depreciation plus financing the lend but that isn’t a bad thing, it’s about making sure the deal offered works for you and that you don’t fall into the obvious trap of adding those extra £10/month for £1 of gain.

I think the key with leasing is to not step out with the intent of procuring the vehicle that you want but rather the intent of taking advantage of what the industry is currently needing to shift. That keeps you focussed more on the money and the value and reduces the risk of thinking with your heart.

From a personal perspective, of looking to make a change to the way I run a car I would run the numbers on what I would typically do and break that down to an estimated monthly cost and then see what suitable cars are available to rent for that similar sum. I feel that would give a clear picture as a starting point.

There are lots of downsides to leasing but almost all of them are directly linked to using the seemingly small monthly costs to end up with something that is bigger risk. For example you can’t easily exit a deal nor do you have any asset should the need arise but if you have good savings, stable employment and generally the means to handle life’s typical shocks without the need to turn to your car then those risks are pretty irrelevant.

Likewise, the issue of having to look after a lease car is arguably more of an issue to someone who doesn’t or doesn’t intend to look after their car regardless of how they gain access to it.

Having nothing to show at the end of three years doesn’t matter if you’ve rented something prudent and saved on other associated costs and the vagaries of selling etc.

In short, renting a prestige wagon when you live in a rathole and have no savings and a risky income is ticking a lot of moron boxes. But renting a modest runabout on a good deal and locking in expenditure while the monthly cost doesn’t impinge on how you live and you have good savings and a good job probably makes you eligible to give a Saturday service in Golders Green. biggrin
Sensible post as per, DA thumbup


dodsi2000

27 posts

19 months

Friday 18th October
quotequote all
Scootersp said:
ie very roughly 2010 BMW 320 D around £25K (£20K with no options) and now with 90K miles worth £3-5K

So £15-22K cost.

Corsa 36 month private lease with 10K per annum approx £20K for 3 x 3 year leases?

Ok so no mot's servicing ved etc and more expensive consumables, but the BMW might well have achieved better fuel savings and the Corsa's had x3 lots of potential return charges for scratches/scrapes, besides I'm not making a exact claim just that if the above two methods were cost equivalent, and it seems they are close, then I think most (certainly on here) would chose the BMW?
I’m still not sure that stacks up, The Superb was £3250 per year maintained for 3 years. We have handed it back and had no charges because we have been very careful where we park it and used the bangers on domestic duties - saving the shiny for long distance/wife’s commute. So other than fuel @ mid 50s MPG and insurance @ £300 per year those were our total costs. VED, breakdown cover, tyres, servicing and consumables. The Superb had 4 new tyres, 3 services new brakes (like a week before hand back but I wasn’t paying extra so meh) and a warranty repair on a piece of trim.

When doing the same maths on the Volvo I wanted a comparison, same friend of mine who got me into leasing has since stopped because he isn’t doing the miles and the lease isn’t worth it to him anymore. He had just sold his second hand Volvo v70 CC - 2003/2004 model I think. Paid about £2750 and sold it for 3k making a small profit on purchase price. However, he kept his receipts for money spent and we worked out the fuel savings on a 22mpg petrol v70cc vs a 45mpg diesel V90 (new). He had ran this car for 3 years, made a profit on resale but all his running costs, services, MOT, breakdown cover, consumables, VED and the difference in fuel costs meant that the v90 lease worked out as £1000 per year more expensive.

So this works out as £83.33 per month extra to be in a brand new, maintained Volvo V90 with all the additional benefits a 2019 model car gives you. DAB, Pilot assist, Adaptive cruise, Volvo on call, electric boot, self dipping headlights, auto headlights, auto wipers, built in phone and sat nav... etc etc etc a lot of car over the ‘old’ V70cc.

Or as he put it £1000 a year to be in a spanker vs well spanked.

This is why I struggle to see much point in anything between the new, well chosen lease deals and a sub £1000 banger. Well, providing you are not wanting a car for any other purpose than transportation as I appreciate this thinking does not really come into play if you are buying something more special for hobbyist purposes.

Scootersp

1,059 posts

135 months

Friday 18th October
quotequote all
It might have been a fair bit better if he'd bought a D5 instead!.......doubt the buy/sell would have been much different to break even.

But I can see the logic and take your point as I always have, and in the mid range/mid age car buying has risks and you will not be certain of a fixed monthly payment, and so it can certainly work out more expensive than a lease in retrospect. Leases they are made to be attractive and there is a retail therapy hit in new anything, and with cars you get new toys, improved safety etc ie real benefits/improvements.

I'm just pointing out that the time period considered can skew results, I don't think you are in my target group (not that I really have one per se) in that you have an excess of disposable income, have crunched the numbers and are generally aware of the additional cost (if there is any) but are more than happy with the trade off with all the benefits the lease gives.

Your points could give someone running a couple of old petrol cars and having some old car hassles a nudge into crunching the long term numbers and perhaps releasing they are paying pretty good new car leasing levels.

I think like your friend most of us flit between different methods over time and as long as you can justify it to yourself and it won't stretch you it doesn't really matter.