/ 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
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.

Member
Heisenberg says:
31 August 2017

I recently bought a rare used car outright and in 18 months of ownership the value has increased by 43%, so it’s wrong to say that when purchasing a car you will always lose money. Taking all associated motoring costs into account, I could probably sell it today at an overall profit. When spending large amounts on tangible things I don’t like to throw my money away, and if possible I aim for a positive return. If you buy something relatively rare there are fewer example available each year, so supply decreases and prices go up. The flood of PCP deals has the opposite effect – the market is awash with common vehicles at 3 years of age with similar mileage. Used dealers have already observed a drop in prices.
So by paying a PCP you pay the depreciation cost to the dealer and have a less marketable asset at the end. If you choose to pay the final amount, most manufacturer’s warranties end after 3 years so you are then liable for repair costs. Having a new car is becoming less desirable as these cheap deals open the doors to the masses – I’d rather drive something distinctive.

Member
Rachelle Maxwell says:
23 April 2018

Hello and thank you I agree strongly with your thinking. I’m just needing to accept my beautiful classic merc will not get through the MOT due to failing the emmisions legislation.

I will continue to look for a suitable replacement.

Member

Emission failures can be remedied Rachelle , usually fuel related , ignition problems or vacuum leakage (basically ) unless there is an engine management system installed . Over-rich fuel injection means sooty like deposits in exhaust system and possible black smoke , a worn engine would be blue smoke in exhaust. I would get a second opinion Rachelle .

Member

The other thing is – if it’s borderline and you do low mileage – an oil change shortly before the MOT will give you a near VW advantage (other tricks are available…)

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.

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.