Lease new car or buy older car?

[DillyTante]

MIL has v kindly given us 6k with which to but a car. Currently we are running two ancient small cars. We were thinking of buying something like a Focus. Nephew works at a dealership which means he can get us about 1k off. We could get a pretty decent used car worth 7k.

Now dh has suggested a new option. Same nephew could also get us a good deal on a new car lease. You pay x amount (prob about £180) and get a new car which is upgraded every 2-3 years. The benefit is tax and insurance are often thrown in, no MOT required and unlikely to breakdown but covered under warranty if something goes wrong.

Downsides are obviously once you stop paying you have no car. Mil's money would last us about 3 years. After that we'd have to keep paying ourselves, which right now we are not in a position to do. A few years away maybe, plus we'd be saving on tax, MOT and repairs.

Dh is quite keen, especially with the lure of a brand new car. I don't car about having a new new car. I would just like one bigger, safer and more reliable than our current rust buckets.

I assumed we would by a car a few years old and run it into the ground like our current cars, or sell it on to upgrade. However, we could buy one that turns out to be a money pit that we are stuck with.

This gift from MIL (she has taken out a loan) is a one-off opportunity, I want to use it well.

Any advice?

We couldn't save any money but we may be better off enough to keep up the lease. Currently both working PT but Dd2 will be 4 by then and in school or preschool so we will hopefully be working more hours.

I think leasing is a very sensible. With all the children at school who knows what your finances will look like in 3 years time? If you were planning to buy a car and then 'run it into the ground' it would have no resale value in three years... so you'd be no worse off. If you lease something new but smaller you won't be paying for road tax or services, and it would be safer, more reliable & more fuel efficient. I still have to shop around for insurance for my lease car but it's the only cost I cover. The rest of the £6k could be in a bank account earning a bit of interest. If you make a commitment to save a small amount each month... say £50... in three years' time you'd have £1800 in the bank to get you started on the new lease.

This is one you don't even need to think about. Over almost any period, buying a used car is better than leasing. The reason for this is the amazingly high depreciation of new cars. The second you drive a new car out of a dealer's garage, it loses about 15% of its value. Over a 2-year period it will lose about 50% of its value. The dealer makes sure you cover this loss of value (plus profit margin) in the leasing price.

Suggestion: with your leased car, find out all the total costs over the 3 years (including setup costs and any final payments). Find out what happens if you have an accident, unusually high wear or high mileage, or if you want to return the car early - the leasing companies often add to the price in these cases. Then figure out all the costs of buying a used car, plus a 3-year warranty from a company like e.g. warrantydirect.co.uk. Now (this is important) look at the current price on autotrader.co.uk of the used car you would buy when it is 3 years older than the car you are thinking of buying (more or less). Now subtract this from the used-car buying cost, since this is the value you will still have at the end of the period.

This is what I did when I bought a car. I also really wanted a leased car because it is a lot of fun to have a brand new one. But I could not find a situation when it was better to lease instead of buy used. Buying a warranty on the used car gives you the peace of mind against failure, but TBH if you buy a car with a high reliability rating the chance of a major breakdown is quite low. Basically buying used will always be cheaper.

Hope this helps :)