To Lease or not to Lease

To Lease or not to Lease

Author
Discussion

dodsi2000

27 posts

19 months

Friday 18th October
quotequote all
Scootersp said:
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.



All fair points, it’s actually nice to discuss like an adult - previously I have kept out of commenting leasing threads on this forum as they often go one way.

And to follow my points, given the situation of my wife commuting and living hundreds of miles away from family it’s nice to have a comfortable car for her to sit in 2 hours a day and something nice to do the 300 mile Sussex - Yorkshire jaunt. However, if she worked more locally I would not consider having such a car - 1 or 2 sub 1k bangers would be fine.

gangzoom

2,291 posts

162 months

Saturday 19th October
quotequote all
dodsi2000 said:
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.
Your maths on the Civic is very different from ours.

Same car, bought as pre reg for £13.5k, did just shy of 90k in 7 years, sold for £3500 within a day of putting it on Autotrader. Serviced yearly, no a single fault, only needed one set of brake pads.

Total ownership costs over 90k all in is something crazy low at 20p per mile (excluding fuel), the Civic was the cheapest car we have ever owned by a long margin.

£7K to do 20k in a lease car is 35p mile, or 75% more expensive.

Edited by gangzoom on Saturday 19th October 07:28

dodsi2000

27 posts

19 months

Sunday 20th October
quotequote all
gangzoom said:
Your maths on the Civic is very different from ours.

Same car, bought as pre reg for £13.5k, did just shy of 90k in 7 years, sold for £3500 within a day of putting it on Autotrader. Serviced yearly, no a single fault, only needed one set of brake pads.

Total ownership costs over 90k all in is something crazy low at 20p per mile (excluding fuel), the Civic was the cheapest car we have ever owned by a long margin.

£7K to do 20k in a lease car is 35p mile, or 75% more expensive.

Edited by gangzoom on Saturday 19th October 07:28
I think my maths is realistic, as it includes all the costs I incurred. The example you have given suggests that you didn’t replace any tyres in 90,000 miles. I’m sure that you have not included all the costs incurred.

DonkeyApple

34,839 posts

116 months

Monday 21st October
quotequote all
dodsi2000 said:
gangzoom said:
Your maths on the Civic is very different from ours.

Same car, bought as pre reg for £13.5k, did just shy of 90k in 7 years, sold for £3500 within a day of putting it on Autotrader. Serviced yearly, no a single fault, only needed one set of brake pads.

Total ownership costs over 90k all in is something crazy low at 20p per mile (excluding fuel), the Civic was the cheapest car we have ever owned by a long margin.

£7K to do 20k in a lease car is 35p mile, or 75% more expensive.

Edited by gangzoom on Saturday 19th October 07:28
I think my maths is realistic, as it includes all the costs I incurred. The example you have given suggests that you didn’t replace any tyres in 90,000 miles. I’m sure that you have not included all the costs incurred.
I think that in reality, what is being highlighted is that when you get towards the competitive middle ground of lease deals it is quite hard work to find a definitive answer as to which is cheaper, renting or owning.

The only way you can really have any credible data is to lease and buy the same products at the exact same time etc. It just can’t be done logically by any other means.

But what this might show is further clouding of the issue caused by automotive RRP which really has become a tool to force consumers into commercial structures that one way or another shift the highest number of new units as consistently and therefore as efficiently as possible. So the lease company gets a lower RRP for buying in bulk, they can then roll in the old ‘free mud flaps’ at twice the normal cost of mud flaps etc while the manufacturer pushes the higher RRP onto the consumer unless they take an overt finance package in which case the RRP will be discounted via fudges such as ‘dealer contributions’. One way or another, the products are being sold in the manner that is most profitable to the manufacturer.

This is obviously how capitalism works. We are living under the sickle. But this particular market is less financially regulated than others and deliberately so which permits selling behaviours that simply are illegal in other markets specifically because they are deliberately detrimental to the consumer and tactics designed to cloud, confuse and over charge.

Most consumers are paying over the odds for their cars. If you try and buy with cash or debt arranged through a third party then the RRP is used to punish or steer into house deals. House deals have funding rates that don’t favour those with good credit ratings. People can borrow unsecured at 2% but the typical secured loan against a car is 5-6%. By retaining ultimate ownership of the asset for at least theee years the manufacturer can also control the value of that asset for those three years etc etc. The truth is that we only get to free market economics once cars are probably over 5-7 years old and unencumbered by the influences of the manufacturer.

But that doesn’t mean all leasing is bad. Obviously like any financial package in a market like this it is designed to maximise profits for the manufacturer but as discussed in this thread it can still represent good value to consumers who are thinking logically and who understand what it is that they need.

I tend to buy cars and hold them for ten years. What works for me is buying them at around 2/3 years old when they’ve done a big chunk of their depreciation. My risk is that I buy a lemon but to date I have managed to mitigate this risk by buying cars that I actually know the history of.

I think if I wanted a brand new Ferrari for a few years then leasing would be great as this would be a pointless toy, a waste of money etc so setting out the costs at the outset would just make life easier. Paying more to limit the variables which will be much bigger with a £250k purchase makes sense to me.

If my wife didn’t drive the car into one of our walls every other week then I’d look to switch that car to whatever car a manufacturer was discounting to shift through the leas market as that would be a low ticket monthly item and remove the hassle of having to maintain my wife’s car myself.

For my personal stuff it doesn’t have any benefit.

dodsi2000

27 posts

19 months

Monday 21st October
quotequote all
DonkeyApple said:
I think that in reality, what is being highlighted is that when you get towards the competitive middle ground of lease deals it is quite hard work to find a definitive answer as to which is cheaper, renting or owning.

The only way you can really have any credible data is to lease and buy the same products at the exact same time etc. It just can’t be done logically by any other means.

But what this might show is further clouding of the issue caused by automotive RRP which really has become a tool to force consumers into commercial structures that one way or another shift the highest number of new units as consistently and therefore as efficiently as possible. So the lease company gets a lower RRP for buying in bulk, they can then roll in the old ‘free mud flaps’ at twice the normal cost of mud flaps etc while the manufacturer pushes the higher RRP onto the consumer unless they take an overt finance package in which case the RRP will be discounted via fudges such as ‘dealer contributions’. One way or another, the products are being sold in the manner that is most profitable to the manufacturer.

This is obviously how capitalism works. We are living under the sickle. But this particular market is less financially regulated than others and deliberately so which permits selling behaviours that simply are illegal in other markets specifically because they are deliberately detrimental to the consumer and tactics designed to cloud, confuse and over charge.

Most consumers are paying over the odds for their cars. If you try and buy with cash or debt arranged through a third party then the RRP is used to punish or steer into house deals. House deals have funding rates that don’t favour those with good credit ratings. People can borrow unsecured at 2% but the typical secured loan against a car is 5-6%. By retaining ultimate ownership of the asset for at least theee years the manufacturer can also control the value of that asset for those three years etc etc. The truth is that we only get to free market economics once cars are probably over 5-7 years old and unencumbered by the influences of the manufacturer.

But that doesn’t mean all leasing is bad. Obviously like any financial package in a market like this it is designed to maximise profits for the manufacturer but as discussed in this thread it can still represent good value to consumers who are thinking logically and who understand what it is that they need.

I tend to buy cars and hold them for ten years. What works for me is buying them at around 2/3 years old when they’ve done a big chunk of their depreciation. My risk is that I buy a lemon but to date I have managed to mitigate this risk by buying cars that I actually know the history of.

I think if I wanted a brand new Ferrari for a few years then leasing would be great as this would be a pointless toy, a waste of money etc so setting out the costs at the outset would just make life easier. Paying more to limit the variables which will be much bigger with a £250k purchase makes sense to me.

If my wife didn’t drive the car into one of our walls every other week then I’d look to switch that car to whatever car a manufacturer was discounting to shift through the leas market as that would be a low ticket monthly item and remove the hassle of having to maintain my wife’s car myself.

For my personal stuff it doesn’t have any benefit.
Granted, the whole rent vs own thing is an almost unsolvable equation which depends on many factors. When you are looking at making the purchase/lease and what risks you are happy to take on. But speaking as a data professional the only way to have credible data... is to have credible data. I think my position/argument is clear on my opinion... which is the incredibly woolly part. But my data is credible, where I struggle is where someone omits data points to support any particular argument. I don’t believe anybody has done 90k with no new tyres for instance. It’s a stretch to think that they have done 90k with no faults at all.

However, I look at the whole thing slightly more simplistic. RRP does not bother me, dealer contributions Blar blar noise. Simply. How many miles to I intend to do? What is the expected depreciation? What is expected (real world) mpg ? What are my expected service/maintenance costs - not including failures because you can’t guarantee those? VED costs? MOT costs? Breakdown cover costs? And once those questions are answered, truthfully I can make an informed decision based on real numbers. So lease, pcp, outright purchase, loan, second hand, new, banger, nearly new, middle aged can then be answered. I’m not saying my solution to the equation is the cheapest or correct one. What I will say is that a new Superb or V90 are much nicer cars than a 2010 Honda Civic for, in my experience not much more or slightly less money.

Or my other solution for minimal usage is bangernomics. Nothing beats a well purchased/researched banger.

joestifff

Original Poster:

483 posts

53 months

Monday 21st October
quotequote all
Thanks for all the replies, all useful, and interesting to hear peoples opinions on the matter.

I have decided to keep the Golf for longer and not lease, and possibly look at either BMW 340i Touring in a year or two, or an S4 Avant, these are types of cars that I presume never or exceptionally rarely come onto lease deals. I will be debt free, and own the Golf outright, so use this as a trade in, with a small bank loan to finance the remainder. Or do what I used to do, and run a shed! But with children, and the requirement for a working safe car, this may be less likely!

That's the plan... Maybe! Things change!

However, my wife is making noises of wanting a new car, she normally pays cash for them, usually around 1-3 years old, no loans etc. She has recently started doing very minimal mileage, so may look at lease deals for her, but not follow the car, but follow the deal!

My opinion from this thread, is that if you are not picky about the car, and enjoy the newness, leasing can be more beneficial than PCP or 2-3 year old cars. But not always. Have to way up the merits of every deal etc. Some people just don't want a new car (myself included) but you cannot escape the fact that some deals can be cheaper than running an older car!

dodsi2000

27 posts

19 months

Monday 21st October
quotequote all
Yep, chase the deal not the car. Follow the leasing thread on here as it’s full of very good info that will point you at the right deals. If you do find something you think is worth it... don’t mess about. Get on the phone/whatever and get the deposit in and lock the deal.

Be aware of the major downside to leasing. Condition on hand back, you just have to be very careful to look after the car.

roadsmash

1,207 posts

17 months

Monday 21st October
quotequote all
Wow, a leasing thread that went well!!!!

Sounds like the right decision OP.

Definitely agree with the chase the deal not the car ideology. Although would just like to add that in fact the S4’s were leasing really well last year, two year lease deals for about £5k a year all-in, guess how I know. wink

They seem to have dropped off now, especially now that the new S4/S5’s are DIESEL (yep you heard that right), but you never know.

JapanRed

805 posts

58 months

Wednesday 23rd October
quotequote all
roadsmash said:
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.
This is an interesting and pretty good post. I think the cash bit at the end needs the following adding to the pros section - “almost always the cheapest option if you have the cash lying around, or even if you can get a personal loan at a low rate”.

Our last few cars have been purchased cash; I’ve always looked at lease deals as it does pain me to spend such a large chunk of our savings at once, but every single time I’ve run the figures it’s been cheaper to buy outright.

Edited by JapanRed on Wednesday 23 October 01:05

Esceptico

1,917 posts

56 months

Wednesday 23rd October
quotequote all
roadsmash said:
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.
I have never understood the last point although others have written it. If you lease or PCP or otherwise finance a car you have to suffer the depreciation plus the implied interest plus admin costs - otherwise the company providing you with the car will make a loss. The explicit or implied finance cost is usually quite high. I don’t know UK rates but I would expect between 5% and 10%. There are no safe investments that will get you even close to 5% nevertheless 10%. To get that sort of return you will have to invest in equity, where you could easily make -5% or -10% if the market turns against you. If you have cash hanging around I think it must be cheaper to buy with cash.

roadsmash

1,207 posts

17 months

Wednesday 23rd October
quotequote all
Esceptico said:
I have never understood the last point although others have written it. If you lease or PCP or otherwise finance a car you have to suffer the depreciation plus the implied interest plus admin costs - otherwise the company providing you with the car will make a loss. The explicit or implied finance cost is usually quite high. I don’t know UK rates but I would expect between 5% and 10%. There are no safe investments that will get you even close to 5% nevertheless 10%. To get that sort of return you will have to invest in equity, where you could easily make -5% or -10% if the market turns against you. If you have cash hanging around I think it must be cheaper to buy with cash.
You are absolutely correct, depending on the person a cash purchase would be sensible.

But a decision shouldn’t be made SOLELY based on interest rates and a few hundred quid a year here and there. The value offered by finance can be worth the extra money.

Person A; has £20k in the bank and wants to buy a £20k car.

Person B; has £100k in the bank and wants to buy a £20k car.

If they both bought cash, Person A would be tying up all of their savings to buy the car, Person B would not.

Of course people will argue that “well Person A shouldn’t buy a £20k car if he only has £20k savings” but if Person A was earning let’s say £40k a year, it would be quite easy for him to continue adding to his savings while paying monthly finance payments.

The risk for Person A is low, the car is covered by a warranty, he has enough money in the bank to recoup any depreciation if he sold the car early (PCP) or indeed he would usually have enough to terminate any lease (PCH) as the total amount repayable on a lease is much lower than the value of the car.

This is exactly why financing is around, to allow a large purchase to be broken into OpEx rather than CapEx. And there’s a small premium to pay for it.

For all we know Person B’s £100k could be inheritance but only earn £12k a year. Finance would therefore be unwise.

Likewise Person C could be riddled with debt so financing, again, would be unwise. On this basis, Person C shouldn’t buy a £20k car.

It depends entirely on the circumstances, there is no wrong answer providing you pick the right purchase method for your circumstances. It really is *that simple.*

DonkeyApple

34,839 posts

116 months

Wednesday 23rd October
quotequote all
Esceptico said:
I have never understood the last point although others have written it. If you lease or PCP or otherwise finance a car you have to suffer the depreciation plus the implied interest plus admin costs - otherwise the company providing you with the car will make a loss. The explicit or implied finance cost is usually quite high. I don’t know UK rates but I would expect between 5% and 10%. There are no safe investments that will get you even close to 5% nevertheless 10%. To get that sort of return you will have to invest in equity, where you could easily make -5% or -10% if the market turns against you. If you have cash hanging around I think it must be cheaper to buy with cash.
I took the poster to be meaning that if the purchase meant using your cash security buffer, rather than excess cash. Ie if you’ve decided that for peace of mind you think that always having £30k in cash is the right thing for you then using it to buy a car might not be deemed appropriate.

Personally, I’m more of the view that such a prudent individual is more likely to just not buy such an expensive car in the first instance if it has taken them a long time to save that pot or if they’ve saved it quickly then more likely to just save for the car or arrange shorter term funding to buy the car now and pay down the finance promptly.

Either way, however, I don’t think it matters all that much as the existence of those savings (if from income etc) shows a financial stability that suggests it doesn’t really matter how the person procures a car within reason as it has no material impact on their security.

Your view though is 100% correct and it does form an integral part of the standard man maths calculation. biggrin

‘I get my car paid for free by borrowing at 6% but investing my wealth for 12% year on year, without any capital risk, without any deviation in return into mini bond bamboo farms and East End property developments, Lendy and other P2P platforms and Woodford.’

There are always exceptions, typically the preference to keep money in a company or tax shelter etc but 99% of the time it’s basically just investment reasoning from that beard transplant bloke wink