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?!

Here's the basics of how it works:

Take a brand new 40K car.
Imagine that car 3 years later, and with 30,000 miles on the clock - it would then be worth (say) 25K.

So, over 3 years it's lost 15K in value.

If a lease company can recover more then 15K from you over 3 years of payments, they make a profit.

How do they recover that 15K?
Firstly, they don't pay 40K for the car like you would. They have greater buying power than you do, and might only pay 35K for it. So they've already recovered 5K
Next they ask you to pay an initial lump sum of 1-2K - so whilst it's a 3 year deal, it's actually not, it's 3+36 months (39 months of payments for 36 months use!).

Effectively what you are doing it paying off the depreciation. So it doesn't really matter if a 40K car depreciates to 25K, or a 20K car depreciates to 5K - they both lose 15K in value, and that's pretty much all the lease company care about.

In order to protect the depreciation, they will place limits on the mileage. You can ask for 5K, or 20K miles, it doesn't matter, they will adjust the price accordingly to reflect the depreciation based on the number of miles (e.g. a 3 year old car with 15K miles will be worth more than one with 60K miles)

This is why an executive car often doesn't seem to cost too much more than a standard medium car - providing it's one of the brands that hold their value reasonably well, like BMW or Audi.

You're usually expected to take care of any accident repairs etc, all the lease company care about is that when you return the car, it better be in an appropriate condition for the mileage. Generally speaking that means 'very well looked after'.

Can you lease a second hand car for even cheaper?

I have a mercedeS GLA. Leasing is actually more expensive than buying it. I pay £301 a month for it, I could buy it for around £250 a month but then I’d have to put down a big deposit.

I also get bored of cars, I like getting a new one every three years, never having to pay for an MOT etc.

I think you have confirmed i am definitely too clumsy for leasing

There's a huge middle ground between "new" and "old banger". My current car (Ford B-MAX Titanium automatic) would have been £18,500 new; I got it for £8,000 at 3 years old and 15,000 miles.

I plan on replacing every 6 years or so, and accounting for trade-in value, than means I only need to budget about £75 a month to replace it. Add on about the same again for tax, MOT, servicing and repairs. Leasing, I can't find a 10K mile personal lease on this car for less than £250, usually more like £300, and with 6 months upfront.

I have absolutely no doubt that leasing is far more cost effective than buying new on a regular basis, but I've long been of the firm opinion that buying new is silly.

Leasing is always more expensive than buying. You're paying for the biggest hit in depreciation, but get to enjoy a nice new car, often it's a car you could not afford to actually buy.

One the big traps with leasing is that once into the cycle, it can be hard to break free of it. After (say) 3 years, you have no car, so lease again. You're perpetually paying a monthly fee.

You can break out of it, of course you can, but so many do not. If you do, it's often a big drop in car size / quality as you have nothing to trade in etc.

It’s almost like another mortgage to pay each month with no end.

I have absolutely no doubt that leasing is far more cost effective than buying new on a regular basis, but I've long been of the firm opinion that buying new is silly.

It's not. If you have the money, you are better to buy the car, keep it a few years, trade in, and buy new again etc. This is basically all the leasing firm are doing, except they are making a profit out of you for doing it.

The best option of all, is not to buy new, but 18 months old, keep for about 3 years, sell and do the same again. Let someone else take the biggest depreciation hit.
New cars pander to the ego. It's a nice feeling to drive brand new, of course it is, but you pay a premium for it.

I don't trade in. Once I pay the car off I save what I was paying for a deposit on the next.

Lease for me because I can’t afford a reliable car with mortgage and childcare bills and must drive around the region for work !!!! Any alternative options welcome

PCP here on first car. Buy outright I can only afford an old banger which costs a lot on insurance. I've got a really economical Suzuki 100quid month really low insurance only 3000 on clock. Couldn't buy it out right.

And don't fall for the '200.00' a month headline figures. Many of these then require (say) a 1200.00 deposit. So actually in the first year that's 300.00 a month in the first year.

It's similar with PCP deals. They monthy figures are designed to be very persuasive at the point you want a new car. But the lower the payment, the bigger the deposit or balloon payment at the end. It's pretty simple maths, but people fall for those monthly figures.

What you really have to do is combine the deposit, the monthly payments AND the balloon payment, add them up, then divide by how many months. Then you'll have the true monthly cost. You'll be amazed at how few people do this.

Yes but some people done have lots of available cash to buy so it’s more manageable even if you pay more over 12m

Lease for me because I can’t afford a reliable car with mortgage and childcare bills and must drive around the region for work !!!! Any alternative options welcome

This is where leasing is so tempting, because if you don't have enough money to buy, or struggle to get a loan, then it becomes your main option. However, 3 years down the line, you're still in the same boat.

The leasing option becomes attractive because a lot of people hope they'll be in a better financial situation 3 years down the line. In truth, most people aren't, but they like to believe they will be. It solves the car problem 'now' and puts off the reality for 3 years.

Cross post - addressing your point entirely.
I don't disagree.

we lease a 40k car we never ever would be able to buy. and it goes through the business as an expense so it costs barely anything. far more than the usual MOTs and services would be costing on our old car.

Surely it's the same as owning a house or renting? Or isn't it?

similar, but not the same.

A house might appreciate, a car won't.
The upheaval of part-ex with a car is minimal compared with a house. The flexibility of renting property is actually more akin to owning a car, as you can get swap it any time you choose (not so with leasing a car)

This is where leasing is so tempting, because if you don't have enough money to buy, or struggle to get a loan, then it becomes your main option. However, 3 years down the line, you're still in the same boat.

Disagree. No interest whatsoever in using my savings to buy a car. I can afford to buy, leasing just makes more sense to me, the fact that I don’t own a car gives me not a nano seconds concern

Disagree. No interest whatsoever in using my savings to buy a car. I can afford to buy, leasing just makes more sense to me, the fact that I don’t own a car gives me not a nano seconds concern

It's financially more expensive though.
People don't always choose the best financial option. But that wasn't the point. The point was about how leasing is attractive to people who can't afford the buy, not that it's unattractive to those who can.

Surely it's the same as owning a house or renting? Or isn't it?

Hmm... In the last 30 years I have made hundreds of thousands by owning houses and I have lost tens of thousands by owning cars.

I have also never crashed a house because the tyres were bare or because the cambelt snapped on the motorway. But we're stretching the analogy a little now.

It isnt always financially more expensive. Depends on what kind of deal you get at the outset, and how much depreciation there is on what you buy. DH once got an astonishingly cheap lease which included servicing, maintenance and tyres. It wouldnt have been possible to buy new, pay for maintenance/servicing etc and sell 3 years later for less.

Also, my savings are currently making around 10% a year in an equity ISA, which makes using them to buy a depreciating asset even less attractive.

I lease and for £135 a month I only pay my insurance and petrol, all other cost like servicing, repairs, road tax are in my contract

It wouldnt have been possible to buy new, pay for maintenance/servicing etc and sell 3 years later for less.

Yes it would. This is what leasing is!

The problem for most people is that they can't afford the initial outlay to buy the car.

Remember, when you lease, you are paying the cost of depreciation, PLUS a profit for the lease company. That's the simple mathematics of it.

The lease company buys at 30K, loses 10K in depreciation, so need to charge you 10K + their profit (about 2K).
If you buy the car yourself, you lose the 10K in exactly the same way, but don't need to pay them the profit.
The car depreciates less than 10K, you get to save that money, with leasing, they keep that extra.

@LizzyBennett Very few lease deals include insurance. Mine does as it's a special leasing service for disabled people. There are some mainstream leasing offers that include insurance such as Peugeot 'Just Add Fuel' but compare prices to a quote for a deal that doesn't inc insurance. You usually pay more for the privilege. Also much less mileage allowance. Some leasing companies won't accept people who have just passed too, though of course some will x