Lease cars....

[Stressballs]

Lots of people I know seem to drive around in high end cars which are disproportionate to their earnings and every few years they seem to be upgrading to an even bigger/better car. DP and I are car hunting at the moment and I mentioned to DP that I had always been rather intrigued as to how other people earning far less than us managed to afford these executive cars (when we are driving around in a modest little hatchback!) and DP was saying that barely anyone actually buys cars anywmore and they all lease them instead. Not sure where I’ve been but I had no idea!

Is it really that common now?! I’m struggling to see what the financial benefit is as surely since you never own the car it’s an endless cycle of monthly fees to be left with nothing at the end and having to do it all over again. Or perhaps it’s just for the staus of having a showy car. Am I missing something?!

But Torn it is going to cost you a lot more to borrow 30k than 20k.
Must people don't have that amount of capital that they are happy to tie up in a depreciating asset or we would indeed all be driving around in prestige motors
Also on that note I would never buy an old BMW, Merc etc as the cost of parts is so high.

And PS my PCP deal is £220 pcm but that's for an EV that will be obsolete in 3 years so the depreciation will be insane, far more than the cost of the PCP deal.

Yes it will cost you more to borrow that amount but you aren't going to spend that amount, you'll pay it off early when you sell the vehicle. So you won't actually have borrowed 30K for 5 years, you'll have borrowed 10 for 3 years and paid the remaining 20K after 3 years.

Plus you can often get a far better private finance deal than the ones on the forecourt.
It's not for everyone, and if you actually have the money anyway, then you wouldn't need the loan.

And PS my PCP deal is £220 pcm but that's for an EV that will be obsolete in 3 years so the depreciation will be insane, far more than the cost of the PCP deal.

That just doesn't make sense. Otherwise, the finance company lose money. If the depreciation is so dire, then you'll just hand the vehicle back and they'll be out of pocket. You'll have had the use of the car for less than the depreciation amount, which means the finance firm will be out of business in no time.

What was the actual deal? 220pcm isn't enough details - What deposit? what term? what balloon? what vehicle?
Only then can we do the maths here to show how the deal works. Believe it, it works for them, the amount you pay HAS to exceed the depreciation amount. Always.

“Today 12:10 ThePants999

@glintandglide I have no idea what point you're trying to make. Depreciation is an accounting treatment, yes - one that allows for the loss in value of an asset over time to be reflected as a cost. That's exactly how everyone here is using the term, so what's the issue?”

It doesn’t have anything to do with the loss in value. It’s about spreading the cost over its life. You can’t do that as an individual, it’s totally meaningless

depreciation
dɪˌpriːʃɪˈeɪʃ(ə)n,dɪˌpriːsɪˈeɪʃ(ə)n/Submit
noun
a reduction in the value of an asset over time, due in particular to wear and tear.

It was a word long before accountants tried to claim it as something they invented.

Yeah right. That definition is correct, its still
Meaningless for an individual. You’re talking about your resale value vs the price you paid, and viewing that loss as depreciation. It’s not.

It is.
It's a widely used term in the English language above and beyond accountancy.
The value of a vehicle diminishes over time. That is commonly referred to as depreciation. It has a very specific meaning in accountancy, but that does not mean it doesn't have a wider meaning in general day to day use.

The loss isn't depreciation, the depreciation of the asset (the car) results in a cost. That cost is the difference between what you bought it for and what you sold it for later.

The overwhelmingly understood view of depreciation is precisely this:
How quickly will the value of my car diminish in value?

www.moneyadviceservice.org.uk/en/articles/car-depreciation-explained

Yes- but my point is that is the widely misinterpreted misunderstanding of depreciation from the general Public, who really know nothing about it. Cars are just very expensive items you own.

glint

Perhaps you could explain what depreciation means since we are all getting it so wrong?

Please share what these good rates of interest are with instant access, one of my reasons to buy things is that interest rates are so low.

I did mention what they were earlier in the thread. I have an equity ISA and I've just logged in to check the performance. My annualised return is 9.16% Hope that helps.

I get a company car allowance but it mandates that the car must be less than 3 years old, why wouldn’t I lease in these circumstances

We have our Fiat Panda on lease and every 2/3 years we get a brand new car. The payment covers servicing as well. If ever we can’t afford it we can give it back or, after 3 years we can pay the balance and own it. It suits us very well.

Um..my mate got a brand new Fiat Panda for under 6 k!
It doesn't really seem worth leasing a Panda!

Depreciation is spreading the cost of the purchase over the time you will use it. It means nothing for an individual - Youre taking about the resale value, and how much you’ll lose in pounds from
Time of purchase to time you want to sell.

That’s not depreciation and it’s a bit weird you’re costing it out, since people don’t do it for other purchases.

Depreciation is spreading the cost of the purchase over the time you will use it.

No, it's not!

That’s not depreciation and it’s a bit weird you’re costing it out, since people don’t do it for other purchases.

I wasn't, I merely asked for your take on depreciation since you seem to be telling everyone on the thread they are wrong.

Er, yes it is. Not sure what you think it is

Er, yes it is. Not sure what you think it is

Well it's not 'spreading the cost of the purchase over the time you will use it'. That's called finance.

Leasing is genuinely good value for money for some people and genuinely a waste for others. You can work out which camp you are in by thinking about what age your car if you bought it without a lease is going to be when you trade it in. The depreciation over just 3 years can be very steep so if you are likely to trade in after 3 years then you will save money by leasing instead. Of you are more likely to hang on to a car for 12 years then it's a huge waste of money to lease.

Right Imchlibob. I typically do 15-18,000 miles a year. I would never ever keep a car for 12 years - the absolute max is 6 years. Pretty much every car I've had, I've driven to about 175,000 miles, then sold on. They've cost me a lot in repairs and services towards the end. The last car I owned, I had already spent $1500 on that year, and it needed another $3k just to keep it on the road. The electric doors were threatening to go next. God knows what that would have cost to fix.

We've given up buying our high mileage cars, because it's just more predictable in terms of cost to lease them. We get a reliable car with a predictable monthly cost, which won't break down in remote parts or when I need to get somewhere, I get to choose which model I want, they have new all-weather tyres, and I enjoy the 15,000 miles I do per year in it. If they do break down - which has never happened yet - I'll get towed to the nearest dealership and get a courtesy car while it's fixed.

DH does the same with his car.

The only vehicle we own now is our Ford F-150, which has about 90,000 miles but which we use much less - we probably do about 3,000 miles a year in it. We'll own that forever. We don't bother fixing stuff like the rust, and we do minimal repairs on it.

The payment covers servicing as well

You can get servicing plans that are very cheap when you buy a car too.

Thanks Onwhite horses, I was thinking more about instant access that you can withdraw instantly, we have shares though for long term and I will look into Equity Isa's as the return does look good.

A nearly new car suits me and I am quite happy to buy up front, my mileage is very low, I keep them a few years then trade in, a brand new car would be a bit of a waste for me as I don't use it much, My last Fiesta I bought for about £7500 and kept it about 7 years and traded it in and got £2400 for it, my latest Fiesta was £9K and I will probably keep that for about the same length of time. A lease deal would cost me more and I don't need a brand new car anyway.

Torn I agree. We go round and round on the car thing - our instinct is to only be cash buyers but then it seems “wrong” that in our combined very high income we can only have a very average car whereas everyone else is driving these flashy cars. So as I say, we go round and round having the discussion but ultimately it comes down I think to the fact that these companies are making money from you so it cannot logically be cheaper to lease or use HP than buy outright. Every now and then I guess depreciation will be higher than anticipated so you will win if you lease, but on average it’s got to be more expensive.

Also the finance company has to make quite a lot more than the depreciation to keep it in business. They will have administration costs (they are paying for all the staff wages, tax, buildings, advertisement etc) as well as whatever the cost of borrowing the money is for them, because they don’t get the cash from nowhere, as well as a small profit margin.

If you are able to borrow the money easily enough it should be cheaper for you to just buy a new car and upgrade every 3 years.