Car allowance - lease vs buy

[Keepersball]

Hi all,

New to the forum and first post so go easy on me 😜

I’m starting a new job in sept and will have a £400 car allowance (After tax I reckon i will only see just over £200) I’ve always had company cars so now need to decide what and how to get.

My thoughts are that if I get a loan and buy over 4 years then at the end I’ll be left with residuals in the car which is essentially free money.

Allowance scheme is pretty open with only stipulation being must have 4 doors (no mileage or age restrictions)

So my question is with a budget of £12k what would you go for - ideally nothing over 7 years old ?

Or alternatively am I being daft and should I go for a lease - if so with a budget of around £300 a month and £2.5k to put down what should I look at?

Thanks all

[Hackney]

It's a tricky one. Leasing absolutely ties in with the monthly payment of an allowance and you can get a new car every X years as you see fit.
Using car allowance I've leased (Civic Type R, S2000, BMW M135), done a PCP (Golf R) and bought outright (Passat W8, Saab 9-3 Turbo X and my current car, a Focus ST)

What car though? I think you need to give a bit more info:
- your size requirements
- mileage (co and personal)
- how long do you want to keep the car
- do you want to buy new or used on that budget?

If I had a car that fit the bill already (situation I'm in now, having started a new job 2 weeks ago) I'd run the current car for a few months just while you find the lay of the land in terms of expectations, mileage etc. Why not pocket the allowance for a few months and build up a deposit for a lease and bring down the monthlies. Or put it in a pot for maintenance or increase the £12k budget.

[Fastdruid]

Hackney said:

What car though? I think you need to give a bit more info:
- your size requirements
- mileage (co and personal)
- how long do you want to keep the car
- do you want to buy new or used on that budget?

Also how are business miles recharged? Do you get a fuel card? Do you get paid company car rates or private car rates etc/

[pembo]

The mileage you will be doing is definitely worth thinking about.
There are a few ways of looking at it, one being the 'free car' one which I hope to be able to do once the wife is back at work full time when the kids are both at school.
At the moment I've gone for the allowance covering all of my driving costs. It means I'm driving a beige Seat Mii but it costs £120 on the PCP, £20 to insure and £80pm in fuel to commute to work which isn't too bad (and I've developed a bit of a soft spot for the silly little thing).
One thing worth considering is the real world mpg against what you'll be getting for your business mileage. For example if the petrol allowance is say 12p a mile you're going to want to get close to 60mpg to cover your costs.

[Fastdruid]

pembo said:

One thing worth considering is the real world mpg against what you'll be getting for your business mileage. For example if the petrol allowance is say 12p a mile you're going to want to get close to 60mpg to cover your costs.

*This*

A number of people at work with car allowances have gone for dull diesels in the misguided belief that they're better on fuel. Which of course they are but most are a country mile away from their claimed mpg and the HMRC advisory fuel rates as based on those claims and the advisory fuel rates don't cover wear/tear or consumables etc.

So if you have a 2l diesel you *have* to hit an *average* of 51.8mpg to break even on fuel alone and over 2 litres its 45.3mpg.
Obviously you can easily find diesels that will do this but its not clear cut as nothing gets close to the claimed mpg.

As an example previous line manager was effectively subsidising his business mileage in his Jag as he only managed ~40mpg and yet was only getting paid for his mileage at an equivalent to 45.3mpg!

Meanwhile I'm running around in a Petrol 2.5T and I only have to hit 26.2mpg. Which is easy as it will easily to 34-36mpg on a run. Hell at 26mpg you could just about hit that with an RX-8 on a run!

If you have a fuel card however then you'll probably *repay* at the HMRC fuel rates. This brings it the other way round, you want the worst mpg small car you can get. For example if you run a 2l turbo petrol you can razz round doing 20mpg round town but recharge the "private miles" at an effective 39.9mpg. Utter result!

In short though, you *have* to do the maths and everyone is different. I use ~85% of the claimed extra urban mpg as a reasonable guestimate of the mpg, although if you're then looking at a short list you can then look at the "real mpg" sites to get a better idea.

[Chestrockwell]

My brother just got a new Audi A6 Black Edition 40 TDI for 365 pm (can’t remember exactly but between 360&370) 3+23 10k per annum



Sure you’re effectively throwing money away which is what my dad had told my brother but as soon as my dad drove it and saw it in the flesh, he changed his mind. It’s a stunning machine.

Unless you buy smart and get something Japanese or something simple under 7 years old, there’s no point as anything interesting will end up costing you more in the long run, repairs, maintenance etc

Edit - he averages 45 mpg mixed driving with the aircon all the time (been a hot month) and it hasn’t hit 1k miles yet, will return better MPG after its properly run in.

[Gareth1974]

Audi A4 Black Edition are on offer at the moment https://www.whatcar.com/car-leasing/deals/personal...

[Keepersball]

Thanks for all the advice guys in answer to some of the questions

I’ll be doing around 15k miles per year

10k of these will be business miles which I can claim back at £0.15 per mile

I’d be looking to keep the car for around 3 - 4 years

No requirements on size other than having 4 doors

If I was looking to buy I’d be looking used and examples of what I’ve seen around £12k include jag xf or golf gtd

Cheers

[peld]

obvious point is do you need to buy a new car?

Remember a car allowance is just a way to pay you more in cash but limiting the effect on your benefits like pension.

[Keepersball]

I definitely have to buy something as I’m currently in a company car which I have to give back when I leave my current business so will be without anything in 2 months time

[Fastdruid]

Keepersball said:

I’ll be doing around 15k miles per year

10k of these will be business miles which I can claim back at £0.15 per mile

15p/mile is quite generous if that is fixed. Is that regardless of fuel type?

That would mean you can get something that does ~40mpg (on a run) and break even. Plus as your personal mileage isn't particularly high either you could afford to run something reasonably interesting (as long as it gets 40mpg+ on a run).

Don't forget also that you can claim the tax back on the difference between your mileage payments and the 45p/mile.

So for example if you do 10k

10000Mi x ( £0.45 - £0.15) = £3000

£3000 x 20% = £600 rebate

[Mandat]

Keepersball said:

My thoughts are that if I get a loan and buy over 4 years then at the end I’ll be left with residuals in the car which is essentially free money.

There's no such thing as "free money".

The residuals that you will be left with at the end of the loan term will be your own money that you will have paid when the car was initially purchased.

Have a think about it.

[Fastdruid]

Mandat said:

Keepersball said:

My thoughts are that if I get a loan and buy over 4 years then at the end I’ll be left with residuals in the car which is essentially free money.

There's no such thing as "free money".

The residuals that you will be left with at the end of the loan term will be your own money that you will have paid when the car was initially purchased.

Have a think about it.

That depends how much, surely. If he pays in say £3k of his own money and the car is worth £6k after being paid off he's £3k up over and above what he paid in originally. Obviously if he pays in £3k and the car is only worth £3k at the end then he hasn't gained anything.

[Mandat]

Fastdruid said:

That depends how much, surely. If he pays in say £3k of his own money and the car is worth £6k after being paid off he's £3k up over and above what he paid in originally. Obviously if he pays in £3k and the car is only worth £3k at the end then he hasn't gained anything.

I'm not following your logic.

Does the OP somehow buy a £6k car for only £3k, or does the £3k car appreciate to £6k during his period of ownership?

Both of these scenarios are possible but not very likely in the OP's circumstances.

[Keepersball]

Just to give you my take on what I meant

Currently it is possible to get a £10k loan at 2.9% apr with monthly repayments of circa £220

Assuming I put £2k towards the car then use the car allowance to pay off the loan - at the end of the loan payments any residuals above £2k in the car will be free money as I will have recovered initial outlay and won’t have paid back any loan payments personally as they come from the allowance

Hope this makes sense

[Mandat]

Keepersball said:

Just to give you my take on what I meant

Currently it is possible to get a £10k loan at 2.9% apr with monthly repayments of circa £220

Assuming I put £2k towards the car then use the car allowance to pay off the loan - at the end of the loan payments any residuals above £2k in the car will be free money as I will have recovered initial outlay and won’t have paid back any loan payments personally as they come from the allowance

Hope this makes sense

I get what you mean, but the car allowance payment that you will receive is just an extra part of your salary, which is your money anyway.

I guess that in your own mind, the car allowance part of your salary is thought of as a separate pot of cash outside of the salary, hence the thought that you would be getting some "free money" at some point down the line.

I can understand your reasoning, and it does make sense. The point that I was making is that the "free money" part that you might receive in the future is your own money in the first place, which will be tied up in the car until you sell it to release the equity.

[Fastdruid]

Mandat said:

Fastdruid said:

That depends how much, surely. If he pays in say £3k of his own money and the car is worth £6k after being paid off he's £3k up over and above what he paid in originally. Obviously if he pays in £3k and the car is only worth £3k at the end then he hasn't gained anything.

I'm not following your logic.

Does the OP somehow buy a £6k car for only £3k, or does the £3k car appreciate to £6k during his period of ownership?

Both of these scenarios are possible but not very likely in the OP's circumstances.

Neither.

It's not rocket science. In this made up example he buys a ~£12k car with a £3k deposit of his own money and pays the rest via a 9k loan with the monthly payments made from his car allowance. After a number of years he comes to sell it and the car will have depreciated during that time.

If this fictional car is worth £6k when he comes to sell it (4 or 5 years later) then he's "made" £3k over and above his original deposit. If it is only worth £3k he's made his deposit back and if it is any less he's "lost" money. Obviously he will have paid £9k back on the loan but that comes from the car allowance.

[Keepersball]

Completely understand what your saying and agree it is part of my salary

I guess in my head I’m comparing it to a lease - for arguments sake let’s say total value of lease over 4 years is £12k at the end of this I would be left with nothing

As discussed with a purchase your left with residuals

Given I don’t have a car and have to have one and can’t really buy a banger due to miles driven and having to transport customers - it’s the comparison of the lease vs purchase that I was working through.

So given all that any thoughts on what second hand car around £12k I should be looking at?

[Court_S]

Ignoring any changes to salary for the new job, don't forget that you'll be paying less tax now that you've not got a company car. My diesel vRS goes back soon and I can't wait. It's been a great car but the tax on it now is far too high.

When I decided to opt out, I add this to what I'd also be getting from my car allowance which added up to a decent budget (c.£500 a month).

I ended up buying an M140 via PCP on a no deposit deal - I know PCP makes people's teeth itch on here but it's going to cost me about the same as my vRS a month (excluding fuel) but for a car that I want. I didn't have to stump up any of my own cash, so if I hand it back at the end of the PCP, I'm in not in a worse position than if I'd taken another company car.

[Mandat]

Fastdruid said:

Mandat said:

Fastdruid said:

That depends how much, surely. If he pays in say £3k of his own money and the car is worth £6k after being paid off he's £3k up over and above what he paid in originally. Obviously if he pays in £3k and the car is only worth £3k at the end then he hasn't gained anything.

I'm not following your logic.

Does the OP somehow buy a £6k car for only £3k, or does the £3k car appreciate to £6k during his period of ownership?

Both of these scenarios are possible but not very likely in the OP's circumstances.

Neither.

It's not rocket science. In this made up example he buys a ~£12k car with a £3k deposit of his own money and pays the rest via a 9k loan with the monthly payments made from his car allowance. After a number of years he comes to sell it and the car will have depreciated during that time.

If this fictional car is worth £6k when he comes to sell it (4 or 5 years later) then he's "made" £3k over and above his original deposit. If it is only worth £3k he's made his deposit back and if it is any less he's "lost" money. Obviously he will have paid £9k back on the loan but that comes from the car allowance.

You're right. It's not rocket science.

The car allowance part of the OP's salary is still his own money, which he will be using to purchase the car with. Any residuals left after the car is sold will go back to the OP, but he will be getting his own money back, hence no "free money".

In any case, whether or not there is a perception of "free money" depends on how you view the car allowance part of the salary, and as per previous posts, I can understand why the OP might think in those terms.