Paying monthly for a car? Should I do it?

[Bruminbrum]

Hi all,

could use some car advice. I’ll caveat this with, I’ve never taken anything out on lease or purchase.

we have as a household 2 cars owned outright. One 7 seater that I think we could see for c£13/£14k and one hatch back we could see for c£7/8k (but the car is getting a bit old now so could really be replaced and I’ve been wanting to for a while)

my company now has a new electric vehicle scheme, and they’ve got my 7 seater available for £500 a month, including charging point, insurance, energy credits, road tax and services rolled in. Should I do it? We spend about £100 a month in fuel per car and insurance annually is about £800. It would get deducted from my salary and my husband would set up a standing order for half.

it would take our household income to c £6k a month inc child benefit (which we save for the kids)

we’d then sell the hatch back and get another run around car, for c£11k and then invest the rest.

we’d need to tighten our belt on a few things like eating out and tbh frittering money away but we typically save around £1k a month, so reckon we’d still be able to save £800 a month. Plus then £8k going straight into the bank. Thoughts?

Is that £500 before or after salary sacrifice? My work EV costs £400 per month, but is half that after tax, and saves me easily £100 per month in fuel, so it's a no-brainer.

On the surface, since your petrol costs are lower, and the car costs higher, it seems less clear.

Would you ever actually own the car or OS this a lease hire? Send insane if you will never own it

I can't tell if it's a purchase or lease. Lease I wouldn't touch with a barge pole personally, if it's just a form of loan to own it then why not go for it?

It’s just lease through work as there is no down payment but then you don’t have to pay for the maintenance of the car.

id typically always steer away from pay monthly to own if I can as you pay far more and a car is a depreciating asset.

Explain that to me, I’ve just assumed £500 would come off my salary, £3.3k to £2.7

It matters if it’s salary sacrifice or not, OP, so find out. This means it comes out of your gross salary, therefore reducing the amount you are taxed on.

We have an EV, all rolled in as you described, as a salary sacrifice, for £500 a month. Reduces take home income by £260.

I think it’s salary sacrifice

thats right, but you'll only pay tax & NI on the £2.7k not the £3.3k so savings there too! Which reduces the "cost per month" a little more

We have a sal sac EV scheme here that i administer but noone wants one 😕 we have 2 people on the scheme.

Christ that's a lot of money going out for a car each month! And you are literally renting it!

I'd rather pay £500 and own something at the end of it, even with maintenance included (which won't be a lot if it's new anyway) it just feels like a lot to pay out. But I think we need more details

It’s the insurance and road tax and servicing.

if I was to take a pcp it would be roughly the same but I’d have to put a lump sum down.

they have an offer on rn the car is normally about £750 a month and it would be on the open lease market if you will

So I just looked and it’s a salary sacrifice that’s subject to BIK taxation set by the government which starts at 3% going up to 5% by 2028

This is down to what tax band you are in, and where in the UK you are. If you look at an online salary calculator, e.g. www.thesalarycalculator.co.uk/salary.php, and add in the £500 salary sacrifice, you will see the difference it makes to your take home pay.

E.g. If you are in Scotland, and earning £43-49k you would have been paying 42% tax and 10% NI on that £500 a month. If you are in England, and earning under 50K it would only be 20% plus NI, so less of a saving. The more tax you pay, the cheaper it becomes. Then you will have a tax adjustment for the BIK, which isn't much at the moment, but will increase.

You should also be able to work out whether it will save you money in petrol - will you be able to get a cheap tariff to charge at home overnight, etc? Or using public charging places?

I would never have leased a petrol car, but for an EV, I don't think I would have bought one outright - with them being so new, I'd be worried technology improvements would reduce the value quickly.

My base is £57k (and some change)

I put it through chat GPT and it said my take home would reduce from £3.2k to £2.9k

Yeah the EV salsac scheme where I work has apparently had very poor take-up too. I think it's because while they could be an absolute bargain if you really did save (say) 40% off the 'normal' lease price, in reality it seems to be that the net figures are only a little bit better than you can get on the open market. I've looked at getting one a few times but always come to the conclusion that, given we already two cars outright that have proved very reliable, which we can treat how we like and do as many miles in as we like, it's just not worth changing. YMMV.

But the problem is you’ll always have to pay a monthly charge. When you buy a car even if you buy on normal finance or a loan at some point you own it without monthly payments.

my car is 9yo. I bought it in 2018 and for the first time ever used finance for half the cost. I paid something like £200 a month for 3 years. So in 2021 have had no monthly payments. I’d expect the car to last me at least another five years with no monthly payments. So if you can have 8 years of no monthly payments you would save 8 years of £500 a month. What’s that 45k?

you would not spend 45k on maintenance , etc. I’ve had the most expensive year ever with my car and it’s still not been that bad. £600 garage bill and that included a full service, mot, 2 new tyres and brake pads.

normally it doesn’t cost me that much. Insurance is £300, tax £200. Still nowhere near the costs you’re looking at.

plus when I get rid I’ll get some money for it.

depends if you’re happy driving an older car or not I guess. I’d never want to get sucked into the model of change your car every 3 years.

sorry. I have quoted inadvertently and can’t remove it 😆. I didn’t mean to quote.

Remember that salary sacrifice schemes also affect your pension I believe.

If your employer is a private company then usually taking an EV on salsac will not affect your pension, in that it will still be your gross-salary-before-EV-sacrifice that the employer uses to calculate pension contributions. Not always the case but that's the norm; definitely worth checking though. The scheme that definitely will affect your pension is the NHS scheme (and possibly other public sector ones), because there it is your post-EV-salary-sacrifice salary that is used to calculate your pension. And that's why getting an EV on the NHS scheme is so cheap - it's not because the NHS (ultimately the taxpayer) is subsidsing it out of the goodness of it's heart, rather it's subsidising it because it's getting rid of a chunk of pensions liability by doing so.

@Biskieboo ahhh, I’m ex NHS so that explains why I thought that 😁

My insurance on my car is about £800 a year and tax as you said.
I don’t think I’d have to pay MOT and service as it would be brand new.

Just to play devils advocate though your calc doesn’t include the initial outlay for the car itself.

ive decided against it anyway, the net deduction on my salary is £560, seems too high, as much as I’d like driving two shiny new cars. Sigh

True i didn’t include the initial outlay and was trying to think how much I got for my old car and then remembered I sold it to dh for 1k rather than part exchange. The car was 11k to buy, maybe I did the whole amount on finance or maybe I paid a couple of k deposit….can’t remember

One of the problems is how much car prices have shot up. Dh is starting to look at replacing his car and for his requirements of 2021 or newer, under 30,000 mileage and quite a big car he’s really looking at 20k! Prices have gone up way more than inflation and are becoming increasingly more unaffordable.

Exactly and given how fast cars deteriorate in value, depending on how long you keep your car for, although I’ve found there’s a certain point that they start to get more and more problems.

i don’t know, maybe I should go for it?

How much would your repayments be for a normal loan? Personally I’d rather do a bank or normal car finance loan and make repayments, own the car and then run it into the ground.

If a car is looked after and serviced it should last 15 years. We currently have a 2010 and a 2016 car and neither of them have had any issues apart from tyres and brake pads/shoes. The older one has getting on for 200k mileage.

The other issue with stuff like pcp and leasing is look into the small print of mileage restrictions, bubble payments at the end, how much could they potentially “fine” you for any little scuffs, etc.

And I’d certainly never get a new car. The biggest depreciation has got to be that first year.