/ Money, Motoring

To buy or not to buy? Would you lease a car?

Car and pound sign held by woman

Three quarters of new cars in the UK are currently bought on finance. Would you rather buy a cheaper car outright, or splash out on a pricey car and several years’ worth of monthly payments?

Call me a cheapskate, but when I work out how much I can afford to spend on my next car, I look at my bank balance and savings and subtract a bit. If the money’s not there, I can’t afford to replace my car.

However, it looks like I’m in the minority – 74% of car buyers are using finance to put a new car on their drive.

But do you see car leasing as money wasting or just savvy spending?

The cost of leasing a car

Go to any car manufacturers’ website and you’ll see huge adverts for finance schemes on new cars. Monthly payments of just £69 are enough to secure the keys to a shiny new Skoda CitiGo. And even Rolls Royce or Aston Martin websites aren’t shy about the option of finance schemes.

Just in case you’re wondering, it’ll take payments starting from £1,888 per month for an Aston Martin Vanquish, and you’ll need to stump up a £40,000 deposit in the first place. As for purchasing the car at the end of the lease, that’ll be £91,000 please. But back to the real world…

Which? Car’s Claire Evans has shared her thoughts on wanting to own a car rather than borrow it, but my issue is whether people actually know how much leasing a car is actually going to cost them in total.

Monthly car leasing fees

It’s easy to be swayed by a sticker price of £69 per month and sign the contract without too much hesitation. But if you have to pay £69 per month, every month, for a number of years and still don’t own the car, is it really good value?

Well, in the case of the Skoda CitiGo, 0% finance means that you pay the list price of the car spread over three years – less if you choose not to buy the car outright at the end. However, a similar Seat Mii will cost an extra 8% over buying it outright thanks to added interest and several fees. And I do wonder how many people do the maths…

Another recent option is packaged leases which include insurance, road tax and servicing costs, all rolled into a monthly bill.

But what appeals to you? Would you consider leasing your next car, or would you rather buy a cheaper car outright?

Comments
Profile photo of NFH
Member

I never buy anything on credit unless the interest rate is zero or lower than the expected appreciation in value of the purchased asset, e.g. a home. Given that cars depreciate rather than appreciate, it makes no financial sense to buy a car on credit. I always pay for cars with a debit card, even as much as £45k. People should buy only what they can afford and stay away from this unhealthy consumer debt culture, whether it be for cars, mobile phones (where this problem is worse) or anything else.

Member

Your advice seems to be based on the idea that all purchases should be for financial gain. This work well with capital purchases such as a house as you stated. However when purchasing a car you will always loose money wether cash or finance. I recently purchased a car on finance to replace my old runabout from my uni days as it had become unreliable. If I were to save up to replace it it would be a year before I could afford a suitable motor. That would be a year without a job as I could then not get to work. Purchasing a car in finance is far more comparable to purchasing a service such as internet access. For a fixed amount a month I am given the use of a car which will be maintained by the dealer. This makes a lot of sense and as long as I budget carefully the arrangement works very well.

Profile photo of malcolm r
Member

I would never buy a new car because of the initial depreciation. I would then hope to keep the car for a fair few years, and be prepared to spend money maintaining and repairing it. So no new car – and if I lease a car I know someone is making money out of me – like PFI, why let them? Then there are the hidden charges if you give it back not in pristine condition, or if your mileage is more than expected. So buy the car you can afford, even if it needs a loan.

Member
Gerald says:
9 November 2013

Hi Malcolm,

What is the difference between a lease and a loan ,if you borrow money in any form you have to pay for it one way or the other, in some cases as explained by Ed people need a car to get a job, so its the old adage sometime you have to speculate to accumulate.This also applies to PFI schemes as if you didn’t know.The Accountants in both the Public sector and the private Sector are all aware of the benefits involved why do you think they all encourage these schemes?
In the real world no one gets a free ride, the choice is simple Pay or walk just look at the third world and Communist Countries where cars are still classified as a luxury.

Profile photo of malcolm r
Member

Hello Gerald, I prefer to own an asset that I use regularly, and buy what I can afford. That may mean taking out an affordable loan if the capital is not available. With a lease presumably you need to take a new vehicle, and you don’t own it unless there is a purchase option – when I have briefly looked it seemed a more expensive option. Anyway, I would buy used.
As far as needing a car to get to your job, cars are much more reliable these days so buying a cheap used car should deal with that (our family cars range from 9 to 25 years old and work reliably).
PFI – having been on the sidelines and seen the number of people with fingers in the financial pie shows why they are such an expensive way of keeping debt off the official books. New hospital building is a classic example with huge repayment costs tied in for years. The schemes are encouraged because they have been a way to get assets that would otherwise require public debt – but what a costly way they are of cooking the books. That is my take on PFI.

Member

Yes, having a new car is very expensive whether you buy with cash, a loan or you lease. The main thing I’ve learnt in over 40 years of driving is that cars cost money!
If image is not important, buy a 2 or 3 year old car and keep it for a few years. Three years ago I bought a 3 year old Kia with 4 years remaining of the manufacturers warranty. I’ve not yet had any repairs, and still have a year’s warranty left and the car has a good trade in value. Makes a lot of sense to me.

Member
Blandy says:
22 November 2013

I’m with Em on this issue. I regard a car as a necessary transport box and so far have never used hp and always paid cash, never more than £5k. For the last 10 years I’ve relied on very reliable Japanese imports from eBay. The last one (4 years ago) – an automatic diesel – cost me £1500. It has 8 seats with several configurations (great for the grandchildren) and is very comfortable to drive. To some extent the minimal capital outlay is off-set by relatively higher running costs – poor mpg returns (35 mpg on motorways – less than 30 mpg in town) but it has never broken down and costs nothing in maintenance apart from the routine services. For the record my Japanese motorcycle is equally reliable, and twice the fun.

Profile photo of Steve Putman
Member

My previous car, a diesel bought new (lots of enjoyment choosing the options on the manufacturers website), was Japanese although made in Swindon, cost me a fortune in tax and lost a larger fortune in depreciation. It was also prone to numerous very unhappy bodywork, electrical and mechanical issues. I was glad to trade it in after five years.

My latest car is Czech, bought as an ex-demonstrator with just a few hundred miles in the clock, saving several thousand pounds, and in the two years I have enjoyed driving her, has had no issues. The government were deprived of new car taxation and depreciation so far is negligible.
She is also much more economical – diesel and does 55mpg at 70mph.

Buying brand new is delightful if you can afford to waste loads of money in taxation and depreciation, but stupid.

Profile photo of James Brown
Member

I love to know about the Auto services. It’s really interesting.Thanks for sharing this wonderful Post and please continue to share this type of post

Member
Aaron Speight says:
6 December 2013

I have been a new and used car salesman for the last 6/7 years now which comes with a company car so no worries there. My wife and I have recently bought a new A1 for her to replace her Mini One, unfortunately I don’t work for Audi to get an employee deal. They are still fairly new and so the used prices are quite strong, we ended up going for a new car on PCP as there was 1000 deposit from audi plus free servicing, and we managed to negotiate a discount of 1000 off the car, it worked out better than buying used and with new you can pick the options/colour etc. Dealerships are paid more to sell pcp so we would not have had 1000 off if we were paying cash.

A lot depends on what you want a car for, if it is literally a task to spend as little as possibly to get from a to b then that will determine what you will buy. For my wife and I it has a lot more to do with style, identity, convenience and running costs.

Many people like to look at a nearly new/used car and see a huge saving against the manufacturer list price and think ‘wow I’m saving all this money and paying no tax to the government etc.’ – firstly a lot of manufacturers have a list price and then set discounts of £1000’s on the car straight away to make it look like a great deal (DFS do this with sofas), and this is the true new car price. Also if a car has £1000’s off it on top of that it shows that the car is not a great model and the dealer is having to make the price attractive as the car is not.

Member
L Nash says:
9 February 2017

A messy separation left me with a very bad credit score, I needed a car but did not have enough to purchase outright, secondhand made me nervous as I know nothing about cars. I have to commute to work driving 2 hours a day and so need something reliable. I had never considered leasing previously as I always assumed it was for businesses, but when I started looking into leasing found myself being turned away – because of my credit score. Very frustrating as I am in full time employment and can afford repayments. I finally found Compass Vehicle Services Limited, who not only were extremely helpful but also got me into an Hyundai i30 (I would not have chosen this if I were on my own!) Their reason for the i30 was reliability, within my budget and 5 year manufacturer warranty – so ticked all the box’s. I am taking steps to get my credit score back up and Compass have said they will write me a credit reference when my lease is up to help me get back into mainstream. Would I buy a car again? no, I am happy driving in the knowledge that I have a new car which I can change in 3 years time. For someone like me who does not know anything about mechanics, I feel safer in a leased car.