To wonder why people finance cars they can’t afford?

[MonkeyTrap]

Just that really. I saved hard to buy my car, to replace a car over ten years old with 150k miles on the clock. Nothing flash, just reliable and 18 months old. Which was luxury to me.

But it seems so many people finance their cars and ironically, those that can’t afford it drive out a sleek brand new one and those that want to pay outright rein it in.

Think the option to finance everything, sofas, holidays, cars, home improvements is just pushing up the prices where people seem focused on the monthly and not overall price.

More brand new cars are now on lease, than on finance as it is a cheaper way to own a car than buying brand new as you don’t suffer from the immediate depreciation when you drive it off the forecourt.
Lease costs include the depreciation - it doesn’t miraculously vanish!

We live in a greedy world where there are people who will always want more and never be content with what they already have.
People don’t want to save up for the things they want, they want them now and they want want they perceive as the best.
It’s sad really. People think things and stuff will make them happy but by learning to live more simply and within your means I’m almost certain that allot more people in the world would find authentic happiness.

Just to be clear, those who think I’m “green eyed” or need to focus less on other people.

Firstly, I think it’s clear if I wanted to buy a flash car, I could. Nor am I jealous of Co-workers with their flash cars parked on their parents drives.

Secondly, mumsnet is all about lighthearted convo like this, I’m not consumed by it. Just light hearted musings!

We got our car on a 3 yr lease plan through dh's work because the old one broke and we didn't have the money to just buy a new one outright.

We bought our settee on a 0% plan because the old one broke when we moved. Again, we couldn't afford to just buy one, not even a 2nd hand one from the charity shop, so we had to get a new one where we paid £35 a month for 3 years.

There are some other things to consider if you have he option of buying or leasing. We looked at the total cost of ownership over four years, including depreciation, servicing, maintenance, cost of purchase versus leasing fees. Honestly over four years it works out the same to either lease or buy. So then the question is why would you buy it? You need to part with your cash up front which if you leased could be earning you money (assuming you invest it instead of spending it) or you could use that money for something else. Also where we live I would pay wealth tax on the value of the car if purchased whereas there would be none for a leased car.

So whilst I agree if you’re hard up it might not be sensible, there are occasions when it makes financial sense to do so. If you’re hard up and live in the middle of nowhere or need a car for other reasons, it’s an easy way to get what you need.

Now, if we’re talking about getting yourself into debt to keep up with the Jones’s probably not a good idea, but I din’t Think you can assume everyone that hs leased a new car fits into this category.

Greaterthanthesumoftheparts

There are some other things to consider if you have he option of buying or leasing. We looked at the total cost of ownership over four years, including depreciation, servicing, maintenance, cost of purchase versus leasing fees. Honestly over four years it works out the same to either lease or buy. So then the question is why would you buy it? You need to part with your cash up front which if you leased could be earning you money (assuming you invest it instead of spending it) or you could use that money for something else. Also where we live I would pay wealth tax on the value of the car if purchased whereas there would be none for a leased car.

That’s interesting!

YABU as you don't know the financial circumstances of your juniors, only what they've told you (either via HR, as their line manager or personally through chatting). They might have windfalls promised to them or maturing assets held in trust and grandparents promising to help them on the property ladder if they save £2,000 etc.. I know a couple of junior colleagues who live at home with parents and drive new cars but already have a property or two which they rent out.

I'm sure some people look at me and wonder how I afford my car. I have a fairly normal sounding job description and am low key in terms of holidays, house, clothes, jewellery etc. but actually I'm in the top 5% of earners and have more than one company. I just wanted to have the pleasure of a brand new luxury car that's completely impractical.

I think unless you know every minute detail of a person's life then it's difficult to say they're being silly spending on a new car.

Honestly over four years it works out the same to either lease or buy. So then the question is why would you buy it?

Because after 4 years, it's yours and the next 4 years only costs you routine service and maintenance. Whereas if you continue leasing, you've another 4 years of leasing to pay for. Depreciation from year 4 to 8 is minimal.

I currently have a 11 year old car, I bought it new. It was serviced/MOTd yesterday costing just under £300. That's the cost for the year, other than road tax, insurance and fuel. So £25 per month compared with a couple of hundred a month to lease a new one. That's one BIG difference. It's never cost me more than £500 per year in servicing/repairs etc. Insurance is also ridiculously cheap due to the age of the car and my no claims bonus (£125 p.a. fully comp!). All the while, I'm saving money each month so that I can buy another brand new car when I want - maybe this year, maybe 5 years time, who knows, but all those couple of hundred pounds per month I'd have been spending are sat in my bank account ready for the next car I buy.

Too many restrictions on leased cars - DH drives 25k miles a year and lease options for those sorts of mileage are v.expensive. Also, the environmental impact of so many people upgrading to a new car every 3 years is horrendous.

Have noticed dealers push to up sell to customers buying on PCP. Dnephew wanted a Kia Rio and salesman was pushing him to upgrade to a sports wagon which was about £7k more but ‘it’s only x pounds more if you pay monthly....’

I don’t really understand the logic of spending hundreds every month on a car then not being able to afford day to day life. I do have a car loan at 3 percent interest but we can more than afford to pay it and plan to start overpaying it.

@kazzyhoward I think you've been very lucky. My last car which I bought for cash from a reputable garage cost me almost £5k over five years due to various things going wrong with it (all outside warranty). The inconvenience of not having a car whilst your own is repaired is very irritating, not to mention the risk of something suddenly 'going' on older cars (even those that have been checked over by the AA and serviced/MOTd regularly).

A friend bought a VW for cash last year and already it's needed a new clutch and a new engine and she is having to get around by bus, taxi and train in a semi-rural area while it's repaired as she lives alone and has no family nearby.

I can see why people are tempted to buy new.

the environmental impact of so many people upgrading to a new car every 3 years is horrendous.

This. Cars should last a LOT longer than 3 years and we should not have a system which encourages us to see them as replaceable. Like phones that people upgrade every year or two. It's crazy and unsustainable and so bad for the world.

The problem with leasing is not just that it might be more expensive. (With car leasing nowadays there probably isn't a huge difference in cost between leasing and owning for the first three years.) Leasing is risky because you are committing to outgoings ahead of time without knowing for certain what you spending priorities will be when the time comes to make each payment.

I always bought cheap old cars to commute to a highly paid but insecure job. I knew that if I was in work I could afford any repair, and that when I was out of work, I didn't need the car to be running. For me it didn't make sense to commit a lot of money up-front for an expensive car that might end up sitting in the garage for months at a time, while I was running out of money to pay the mortgage. It also wouldn't have made sense to tie myself to a lease, for similar reasons. (I assume leases where you can hand the car back at any time with no penalty are fairly rare. I would define "no penalty" as meaning the car needs to have cost you not much more than owning it for the same period and selling would have. )

(Also, for me the highest financial priority was to have investment income that exceeded my outgoings, so that work was optional. So I didn't regard a nice new car as an affordable luxury until several years after I had paid off the mortgage.)

The only reason I have a 'new' car is because I have a salary sacrifice deal from work.

I end up paying just under £300 from my gross pay for a brand new (last year when I got it) BMW 118i, with 25k miles per year and just add fuel. Everything else is covered including insurance. I know there is no better deal out there for me with this car - I checked.

I see on LinkedIn car dealers all of the time talking about £600 per month before even insurance for a Range Rover and that to me is excessive and people probably living beyond their means. Not many people need a car the size of a Range/Land Rover, especially not these Mums who have a white one and who drive 500 yards to the school gate and can't park them once arriving! Those type of people, those are the ones who it's a status symbol for.

Mine is just an extremely good deal.

I hate this assumption that if you have a nice newish car it’s all about keeping up with the Joneses and wanting to show off and that if you can afford a nice car you’d be driving an old banger. Such a lot of rubbish. Some people just like a nice car, can afford it and don’t want to drive something 10/15 years old.

I bought my current car on finance. It was 8k and there was no way I could have afforded that outright. I needed something reliable, with enough space for a wheelchair and mobility scooter and it fit the bill.

It's paid off now so I own it outright. I did struggle at times but I couldn't risk being stranded at the side of the road with (potentially) two kids under 3 and my disabled mother.

My husband leases 2 cars a Volvo x60 which he used for his business and what I call his mid life crisis car a Mercedes CLK 2 seater convertible
The Mercedes cost him £325 a month he put down £1200 at the end of the 3 years he hands it back
He can easily afford so what’s the problem
My old car I bought 3 years old from BMW at £14500 when I looked at trading it in 3 years laters and only a further 3000 miles on the clock so under 30.000 miles
they offered me Under 5k for it
I should have kept the 14000 and leased out of my own money
Which is what I do now
Leasing if you get the right deal can be a good deal if you want a no hassle drive on a new car

off topic slightly, but I don't believe there is really any such thing as 0% finance. They're just hiding the cost of the finance in the price of the vehicle. They'll tell you can't get any discount for paying cash up front, so you think you might as well get the finance. It's a practise that needs better regulation imho.

@kazzyhoward I think you've been very lucky.

Well, we've been "lucky" four times now - it's the fourth car we've had from new that has lasted over 10 years with just routine repairs/servicing.

I did have one that needed a little more, but still just a few hundred a pop, but that was when I was doing 25k mileage per year and it didn't really start needing more than the usual until it got to about 150k miles! I think I got my money's worth!

Some people just like a nice car, can afford it and don’t want to drive something 10/15 years old

Totally agree. Some people like long-haul holidays, expensive hobbies
or going to a lot of live gigs. These are all seen as more positive than wanting to drive a nice new car which is somehow looked down on as "showing off".

We have a new kitchen. It cost about £20k. We had the option to pay the whole lot up front or take 0% finance. Why WOULDN'T you choose to spread the cost??

If you have good credit scores you can often secure very good finance deals. If you can comfortably afford the repayments then what's the issue? If you can't afford the repayment, then either you won't get the credit in the first place, or will default and won't be able to get it in the future.

Saving up to pay for everything in cash is not always the smart way to do things.

I have a cheap lease for a new small car. Nearly three years are up, no issues.

Husband bought outright older (5 years) reliable (boring) family car, low mileage. No end of expensive trouble.

Oh and 0% is still very common for larger household purchases like kitchens or sofas. Less so on cars perhaps. Also common for holidays where you pay a small deposit then have months or a year to clear the balance as you please.

Leasing has always been a much more money savvy choice for me.
I like nice cars, but would prefer to spend a lump sum on investments, which a car is not.

Do the maths..

£400 a month for 3 years = a cost of £14,400
OR
Selling a £40,000 car after 2 years realistically for £20,000 (or less)

Leasing also means automatic courtesy car, fixing all scrapes, bangs and even larger accident repairs with no issue or cost, and in my case, insurance included.

I don't understand why people buy cars!!

They'll tell you can't get any discount for paying cash up front

Which is usually a lie. Just walk away and they soon change their mind if they think they'll lose a sale. Last time we bought a new car was for OH, 5 years ago. List price £20k. We got it for £15k "cash" after they initially said there was no discount available and tried to persuade us to lease. I used to have car dealers as clients so I knew the timings of the quarterly bonuses etc so we always go about 4-6 weeks ahead of the quarter end! After a test drive and initial refusal to discount, we just said no and left. The guy was on the phone the next day "talked to his boss" and said they could do 10% discount. We went back in and finally agreed to a 25% discount if we guaranteed to buy it before the month end! I cheekily asked for car mats and a proper spare tyre and tow bar to be added free of charge, and they agreed! The price we paid was actually slightly lower than an identical ex-demo car parked on their forecourt with a few thousand miles. A good result. We just walk away if they won't discount - plenty of other garages will, especially when their quarterly registration bonuses are due!