Why would I lease over a low interest loan?

[Bakerr09]

Why would I lease over a low interest loan on a car?

Surely, it's the same scenario (paying 500-600 a month) and at the end, instead of swapping a car, I have an asset that has indeed depreciated, but I could sell and recoup some of that interest I've paid. Sure leasing is great for brand new cars since they depreciate horribly, but a 4-5 year old car wouldn't. In fact, I've done this with my current vehicle and I'm positive equity on the vehicle. If I sold it tomorrow I'd return 1000-2000 on my purchase. Granted, it's a Porsche and held its value significantly more than others, but leasing doesn't make sense to me unless you want a brand new car every 3-5 years.

After 3 more years, my car loan is complete. I would have paid in total £39,000 for a vehicle that costs £34,500, I even changed my loan rates when I got down to below £25,000 almost halving my monthly payments. I have had to pay 4500 in interest essentially, completely dead money, but in 3 years. I have a car I can sell for 10-15,000.

As a result, I sell the vehicle, and have no loan left, and £10,000 in my account. Can you explain how I am wrong or if I'm missing something?

If I done the same with a lease vehicle, after the agreement is complete, I have no vehicle to sell. I end up with £0 and then have to fork out another 4k for a deposit on the next.

Alternatively, I could get a 25k loan AGAIN, with the 10k from my sold car, and buy another 35k vehicle, but this time, with a lower loan, the car will be paid off quicker thus eliminating depreciation further. Repeat this after 10 years and you'll be making more and more each time.

Finally, maintenance sometimes isn't even fully covered in lease vehicles, if it is, they charge an extra £100.
I understand there would be maintenance bills, but even at £1000 a year in maintenance, I would still come out the other end with a car I can sell for 10-15 grand.

Can anybody help me out here, am I being stupid?


Thanks

Josh

[rustyuk]

You can't lease a 4 to 5 year old car and you can't compare getting a loan to buy a secondhand car to leasing a new car.

[Jamescrs]

Well looking at your example the big difference is you are comparing a used car purchase to a brand new lease car, whilst I personally would go the same route and take out a loan for a 3-4 year old car I can see an argument that you are not comparing apples with apples and some people simply want to own a brand new car every 3 years and are willing to pay for that for various reasons.

[InitialDave]

Your post is hinging on "getting a used car rather than a new car", with the method of acquiring it not being especially relevant.

[Bakerr09]

So to clarify, do people think that people get leased cars on the basis of wanting a new car as opposed to it being financially smart?
If that's the case, I don't get why that's the main piece of advice in finance videos; "Don't buy your car, lease it!"

I'm currently in the market to buy a new vehicle as I'm expecting a child soon and was just trying to make sure I'm not missing something?


It makes complete sense to me to get a car 3 years older that is 10-15k less than it is new, and still pay the same monthly but end up with the car at the end to sell on and recoup interest costs and possible even more.

Most approved cars even come with extended warranties.

[InitialDave]

Bakerr09 said:

So to clarify, do people think that people get leased cars on the basis of wanting a new car as opposed to it being financially smart?
If that's the case, I don't get why that's the main piece of advice in finance videos; "Don't buy your car, lease it!"

No, I think that people want to get a new car rather than a used one for a variety of reasons, and once you're getting a new car, there can be advantages to a loan, a lease, or a PCP, depending on circumstances.

"Always do X" and "never do Y" are rather lazy generalisations for the decision.

[rfisher]

I think it's mainly the ease and convenience of getting a new car every 3 or so years.

I've always bought 2nd hand privately and then sold privately.

My current smoker is now so old and has such a high mileage that it's not worth trying to sell.

I may just Ebay it with a low reserve, let one of my kids have it or run it into the dust.

Buying and selling privately is quite a lot of hassle these days.

Used to be fun getting an early Autotrader alert and ringing the seller at 8am to get to see the car asap.

Must be getting old .

[ChocolateFrog]

Yep that's an easy one.

Not many people are going to get approved for a personal loan of 50k+ (the porsche in your case), whereas it seems almost anyone can get a PCP deal to cover the same type of car.

[Muzzer79]

Bakerr09 said:

So to clarify, do people think that people get leased cars on the basis of wanting a new car as opposed to it being financially smart?
If that's the case, I don't get why that's the main piece of advice in finance videos; "Don't buy your car, lease it!"

I'm currently in the market to buy a new vehicle as I'm expecting a child soon and was just trying to make sure I'm not missing something?


It makes complete sense to me to get a car 3 years older that is 10-15k less than it is new, and still pay the same monthly but end up with the car at the end to sell on and recoup interest costs and possible even more.

Most approved cars even come with extended warranties.

Some people want peace of mind with a new car that is less susceptible to failure and will need no major maintenance whilst they own it.

Also, extended warranties are generally only for another year or so over the manufacturer warranty so one faces the possibility of driving a car (of which new cars are getting more and more complicated) out of warranty.

[Zoon]

A 4-5 year old car wouldn't have any manufacturers warranty (unless purchased separately or a Kia/Toyota/Hyundai) and a wallet raping repair could put a large dent in your theoretical £10k. Not to mention the deduction for road tax.

Also there are unknown factors in depreciation, Government announce overnight acceleration of the ban on petrol and diesel (unlikely, but already done once) and you've got a problem on your hands.

Also there is nothing to say your deposit is 4k, you can do a one month.

Edited by Zoon on Wednesday 21st April 14:36

Edited by Zoon on Wednesday 21st April 14:37

[Freakuk]

Here's my example a few years ago, I'd just bought some nice Pork but then changed jobs, Pork was a daily and the new job was a 100 mile commute each day, so 2000 a month without using it at weekends, the depreciation over a year would be staggering.

I ended up leasing a new Fiesta, bucket load of miles over 2 years for about £5K, I'd have lost that within a few months doing that commute in the Pork. After 2 years I handed the Fiesta back and that was that. I think new it would have been 16K or so and checking WBAC I'd have got 8K max for it with the mileage I put on it, so financially it made way more sense to lease that buy.

[anonymous-user]

Often the total lease cost is a lot less than the depreciation and it is a lot less hassle.

[nealeh1875]

I lease because it is easy.

I have brought used cars in the past.. had nothing but problems
I have brought PCP cars in the past and had nothing but negative equity and sales guys pushing to switch you after 2 years and in a never ended cycle of owing a finance company.

With leasing I don't pay road tax, send back before warranty runs out, have no one pushing me or pestering to switch cars for no reason. Not stuck with negative equity to re finance or carry on to my next car.

Care free motoring over a 2-3 year period.

[anonymous-user]

Another issue is that by the end of year 3 of your loan you are paying the same £500-£600 per month for an 8 year old car. Even forgetting about potential maintenance bills, it’s a lot of money to be paying when you could be in a much more expensive (to buy) and significantly newer leased car.

I lease my cars as for the monthly payment I pay I can get access to higher value and newer cars that I could afford if paying via a personal loan. Allows me to change cars every 2/3 years, including maintenance and road tax. No brainer as far as I’m concerned. Before leasing a new car I always compare to PCP on the same car and to date haven’t been able to beat the lease cost.

[Evanivitch]

Bakerr09 said:

.
Most approved cars even come with extended warranties.

At a cost. With huge caveats. And there's still consumables to deal with.

[Zoon]

Evanivitch said:

Bakerr09 said:

.
Most approved cars even come with extended warranties.

At a cost. With huge caveats. And there's still consumables to deal with.

Yes chuck in a new clutch which won't be covered and more likely to fail after 5 years.

[tighnamara]

Freakuk said:

Here's my example a few years ago, I'd just bought some nice Pork but then changed jobs, Pork was a daily and the new job was a 100 mile commute each day, so 2000 a month without using it at weekends, the depreciation over a year would be staggering.

I ended up leasing a new Fiesta, bucket load of miles over 2 years for about £5K, I'd have lost that within a few months doing that commute in the Pork. After 2 years I handed the Fiesta back and that was that. I think new it would have been 16K or so and checking WBAC I'd have got 8K max for it with the mileage I put on it, so financially it made way more sense to lease that buy.

That is a great deal, £200 per month for 24,000 miles a year, what lease company was that with ?
Did you pay for servicing / tyres etc or was that included ?

[Evanivitch]

Zoon said:

Evanivitch said:

Bakerr09 said:

.
Most approved cars even come with extended warranties.

At a cost. With huge caveats. And there's still consumables to deal with.

Yes chuck in a new clutch which won't be covered and more likely to fail after 5 years.

Even just brakes and tyres starts eating into some of the low monthly payments you can make on some cars, but you wouldn't expect to change on a car in first 3 years.

[anonymous-user]

ChocolateFrog said:

Yep that's an easy one.

Not many people are going to get approved for a personal loan of 50k+ (the porsche in your case), whereas it seems almost anyone can get a PCP deal to cover the same type of car.

I’ve just checked my banking app and to my surprise it offered me a pre approved £50k at 3.6%

I’ve also been looking at a new car for the wife, 10k cash deposit, I can get a loan for another 12k and get a pre registered Focus ST diesel (we love a Focus) with < 100 miles on the clock. Total cost of interest is £400 over 24 months with £500/month payment. We always keep our cars for about 10 years so makes sense for us.

If you want to drive a new car that you cannot afford to buy, renting is the way to go but as my example shows, it doesn’t make sense for everyone.

[anonymous-user]

Zoon said:

Yes chuck in a new clutch which won't be covered and more likely to fail after 5 years.

Eh? Most clutches will last about 150k miles with normal driving.