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?!

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

You are paying for the servicing and repairs within that 135.00. It's not for 'free'.
When you leased, did you pay an upfront payment too? Most lease deals (say 3 years) are x + 36 (usually 3+36). This is actually 39 months payments over 36 months.

It's 'comforting' because you have a known cost to pay each month (barring any accidents / out of warranty repairs), but across the full term, it's still cheaper to do precisely what they are doing, but yourself (and thus not give them the profits!).

It's like people thinking they get a free phone with a contract. They don't.

We lease through DP's Work. Comes out his wages before he even sees it. Recently we had a flat which got fixed straightaway and I didn't have to pay anything. We did it because I got a job where I needed a reliable car and we had a clapped out one that we bought for cheap. Before that we bought another for cheap that lasted 3 months. Before that I had a brand new car that I was still paying for even when I had to start paying for maintenance on it. It just seemed like a constant drain of money and at first I wasn't comfortable with paying out every month but this way we know what we're paying and there's no surprise bills.

And that's how the sales pitch works:

1. Little upfront cost for a brand new car
2. Regular monthly payment that you can predict (barring accidents etc)
3. Servicing included (if it's part of your lease deal, most offer it if you pay some extra)

That's why it's attractive.

At the end of 3 years, and you add up everything paid, you'll have paid for:

1. The depreciation
2. The servicing
3. Their profit

What happens with most car owners though is that they pay their monthly car loan payments, but then when servicing comes around, it 'feels' like a big unexpected bill, because they didn't plan that into their monthly payments. They could just put 30 quid extra into their car fund and then pay for the servicing just like they do with the lease deals, but most don't.

The lease guys also know that in the first 3 years of the cars life, no much will go wrong, and most will be under warranty anyway, so they'll just have to pay for servicing (which they charge for via the bill). Depending on how many miles you ask for in the agreement, they will calculate what additional depreciation that will incur plus the predicted additional stuff like tyres etc (if included in your agreement).
Honestly, they don't pay a single thing - you do. You pay for it all.

Sometimes manufacturers want to shift cars really quickly and do incredibly cheap lease deals. If you can pick up one of those, it can work out cheaper. Particularly if you take into account the loss of interest on savings. It is possible.

I've never come across a 3 + 36 deal. They are nearly always 3 + 35.

Sometimes manufacturers want to shift cars really quickly and do incredibly cheap lease deals

That's true - but often those deals can be had to buy too. Lots of large car buyers offer those deals too providing you choose from the colours and models they have, instead of ordering one to be manufactured.

Yes, 3+35 etc, but usually you can choose how big an initial deposit you want to pay from 2 to 6 months in some cases), which then lowers the remaining monthly payments.
It's still a bit misleading when they say '200.00' a month then you have to pay 600.00 upfront. That's not 4800 over 24 months, it's 5200 (600+4600) (2+23)

I think we will have to agree to disagree. I sat and worked out the cost of buying v leasing, taking into account the loss of interest on savings if you purchase up front. For me (and for DH) it has worked out cheaper to lease, even more so when maintenance deals have been thrown in.

Same here onwhitehorses, i gave an example upthread where the numbers worked for us re depreciation. It won't always be the case by any stretch, some cars are very poor value to lease where others are excellent.

There are absolutely issues around people being overcommitting themselves financially and the risk that people get stuck in a cycle. But there are also plenty of people who like to change cars fairly regularly and for at least some of them (deal hunters!) leasing is the lowest cost way to do that.

My own car is a pcp with low apr - new but pre registered and well timed so I got about 20% off list. I love it and it's very low mileage so i will probably keep it and pay off the balloon then run it for many years to come as I have no desire to switch tbh

DH on the other hand currently has his 7th car in the 14 years I've known him. Mix of second hand, new, bought outright, bank loan, pcp and leasers. In the current financing environment and for what he wants then leasing is currently working out cheapest. If that stops being the case we'll do it another way.

We lease purely because we had an utter nightmare with a car that DH bought. He paid nearly £30k for a Golf Gti - first 3 years were fine. Then the turbo went and cost nearly £4k to sort out and replace. Then something went wrong with the engine management system that took months to identify and replace - the car was in the garage more than on the road as it kept breaking down. Over the 6 years he owned it, that car was an absolute pile of junk. And cost us thousands in depreciation and repairs.

So we now lease. Every 3 years the cars are replaced, the only costs are insurance fuel and the odd set of tyres. Most cars are 20k now between servicing so if you time it right, you can often get away with one major and one minor which means the costs aren't huge. We don't have the time or energy to keep old cars on the road. It's lovely having a brand new car each time - DH has got an Evoque at the moment, which he's already looking to replace with a BMW M5 and I've got a Mini Cooper S.

However you buy or lease them, cars cost you money.

I am uncomfortable with the trend to own less and less and rent more and more of what are 'essentials', really. You just become more and more dependent on other people and their terms and conditions that way. I wouldn't be surprised if lease deals were becoming more and more expensive over the next few years, out of proportion with owning - but by then, many will have become dependent on the lease similar to the trap of renting accomodation.

What are we renting more of, other than houses? We definitely rented more items growing up - no-one owned a TV, and you weren't even allowed to own your own phone back then, you had to rent it from the GPO!

Leasing a car is a cheaper and risk free way of having one of life's essentials for me. It also means I can keep my savings working to earn good rates of interest and I can access them at any time. If I owned my car and suddenly needed a large lump sum, my savings would be in that car and I'd have to sell it, which would make life really difficult.

@sock unicorn

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.

Have you taken the additional tax (NI) payable by the company (if you own it) and the P11D increase in tax based on the list price of the car. We just did our sums on this in similar situation worked out much better to buy the car on finance.

Should have said we bought a year old car to avoid the loss on depreciation. Also new road tax rules means that it costs a fortune for cars registered after 2017.

There is no such thing as depreciation on your car. Depreciation is an accounting treatment

There is no such thing as depreciation on your car. Depreciation is an accounting treatment

It's a specific accounting term, yes.
It's also a generic term that the public understands. A loss in value over time. We all understand what the term means in common parlance.

Well obviously you all don’t understand what it means you don’t expect your shoes to be worth the same second hand as new do you?

We compared my companies lease scheme (via salary sacrifice and P11D) with a standard PCH and the companies scheme was more expensive by quite a long way.

I had a company car for 10 years so when the government started penalising company car drivers the company stopped offering company cars as a "perk" and instead offered a lease scheme or a car allowance. I worked it out and, for me, the allowance was the better option. I could have purchased a 2 or 3 year old car and keep it a couple of years but this seemed pointless. If I could buy a good, nearly new, car and then keep it for 10 years this might work out. But I can't as the company won't pay allowance for cars older than 5 years.

I think this is where the rise of the PCP or PCH originated (ex company car drivers). Now it's actually quite hard to find a car deal from a dealer which isn't a PCP. I know, I tried about 5 years ago. Perhaps it's different from a used car dealership but a main garage will push you towards PCP even on a second hand car because the figures look more attractive. You need to be very careful working out how much you will pay, your balloon payment and how much the car will be worth at the end of the PCP.

Two personal examples -

PCP on an Audi TT. At the end of the 3 year period I sold the car privately, paid off the balloon payment and pocketed almost £4k to put towards the next car.

PCP on a Mini Cooper S. At the end of the 3 years it was worth less than the balloon payment. I cut my losses and handed it back under the termination clause of the contract. I lost nothing but neither did I have a deposit for my next car.

This was because the Audi's depreciation was far lower than the Mini's. I mistakenly thought that Minis held their value well. I guess all I'm saying is be aware of how much you are paying off on a PCP and do your sums very carefully.

I also don't understand the comparison between home ownership and car ownership either. Unless you are buying a vintage Ferrari or something cars depreciate in value. Most property does not (in the longer term).

Should have said we bought a year old car to avoid the loss on depreciation. Also new road tax rules means that it costs a fortune for cars registered after 2017.

In general terms, that's about your best bet. Buy about 18 months old and sell after 3 years. Once you can get on that cycle things aren't too bad, but it's not easy for some to do that.

Yes you do get horror stories like to Golf GTi above, but it's not a like for like comparison of leasing is 3 year old max and that car was older. Had they sold sold the GTi in the same 3 year manner, it would have been more comparable.

No matter how the finance deals are presented, and they are deliberately designed to pander to car buying psychology, of you lease, you are renting, and they lease company need to recover the depreciation + their profit. That's the fundamental truth they try to obfuscate.

Also, sometimes at a dealer you can get a better deal on the car if you take their finance package. But you can pay off their finance package entirely just the week after and use your own sourced finance instead.
Beware of lots of extras being pushed at you too... accidental damage to carpets and paintwork etc. They are not usually good value, and if you set aside the same amount for yourself, you'd usually be far better off.

Gap insurance is more complex. If you write off a lease car, YOU need to replace it or settle the cost. You can lose out if your own insurance will only pay (say 20k) but you owe 25k

What are we renting more of, other than houses? We definitely rented more items growing up - no-one owned a TV, and you weren't even allowed to own your own phone back then, you had to rent it from the GPO!

How about mobile phones (vital communication), cloud space (vital storage for individual users and businesses), MS Office (essential in most work places), antivirus protection and anything else on subscription charges? Unneccessary, but still rented: TV subscriptions, music services, website space.

Just the few I can think of right now.

If anyone can find an all inclusive for under £300 per month, no deposit I’d be appreciative as my PCP runs out in 3 months and I’m looking around for options.

I pay £325 on a 7 Seater bmw, I put down no deposit and owed £1000 as we traded in our old car a year early so would have been less has that not been added on.

You have to say what model, what mileage and what term to put that into context. Then explain what's included and if it's lease, PCP etc?

@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?

Leasing a car is a cheaper and risk free way of having one of life's essentials for me. It also means I can keep my savings working to earn good rates of interest and I can access them at any time. If I owned my car and suddenly needed a large lump sum, my savings would be in that car and I'd have to sell it, which would make life really difficult.

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.

Let's take the basic (we don't know the small print) details of 325.00 a month deal (no deposit)

325.00 x 36 = 11,700

So, after three years, you've spent 11,700 and then have nothing. You just start the process over again and get a new vehicle, providing there's no mandatory balloon payment at the end.
That's probably for 10K miles a year, but we can't be certain.

The alternative is to get a loan for a new car (over a longer term to keep the repayments down), buy a nearly new car, and keep that for 3 years.

If the car depreciates LESS than 11,700, then you trade it in, pay off the remainder of the loan and whatever is left is your profit - repeat and rinse (just the same as leasing).

If the car depreciates MORE than 11,700, then the lease deal would have been better, but the lease company have based their figures on being sure the car won't depreciate that much, otherwise they lose money.

The key thing in your mind is not that you're paying 20 or 30K for car, but how much you will get for it when you sell (the depreciation).
This is why you can buy a nice Insignia for (say) 20K and feel you're getting a lovely car for a good price, then 3 years later it's worth 5K and you've lost 15K in value.
You buy an Audi or BMW at 30K and feel it's expensive, but then sell it 3 years down the line for 20K and you've only lost 10K

Of course, I'm over-simplifying it because there are other running costs to consider and some top brands tend to overcharge for servicing etc (but you don't HAVE to use a main dealer to service the car). Even with those costs.

It's wrong to think '30K' is too much and '20K' is a nicer price. The real cost of the car lies in the actual cost you pay over the lifetime of that car, and not the purchase price.