/ Motoring

I want to own my car, not lease it

Toy car in a tunnel

These days, buying a new car comes with a minefield of finance options. Research suggests that many of us are choosing the personal contract purchase option, but why choose this over owning your car?

The latest figures from the Finance and Leasing Association show that 63% of people who took out dealer finance to pay for a new car between November 2011 and 2012 chose a personal contract purchase scheme, rather than a hire purchase deal.

The figures also show that more than £9bn was spent on new cars bought from dealers in the 12 months leading up to November 2012 – £2bn more than the 12 months before that.

A car is your castle

It seems to me that the boom in leasing is one reason why new car registrations topped the two million mark last year – the first time since the recession hit in 2008. But it also means that people aren’t necessarily buying cars any more, they’re simply borrowing them. To a dyed-in-the-wool car enthusiast (like me) who’d love nothing better than to own a modern classic (Mazda MX-5, Porsche 911, Lotus Elise), this feels totally wrong.

A few years ago, I remember a psychologist from the breakdown company AA explaining the main reason behind road rage was that, once cocooned in their car, people believe they’re in their own personal castle. You could say it’s like your home, but on wheels. But how can your car be your castle if you’re just borrowing it?

Another reason I’m not an advocate of leasing is the hefty payment that comes at the end of the term if you decide to buy the car. On top of that, you usually have to agree to an annual mileage figure up front when you take out the lease. If you exceed that figure and decide to return the car at the end of the term, you’ll usually be charged excess fees to cover it.

Buying over borrowing

At present, both my 15-year-old son and 12-year-old daughter are eyeing up my slightly ragged 2007 Renault Modus, hoping to take the keys off my hands when they reach 17. And I’ll be quite happy to pass the car on to them to learn to drive. By then, it’ll be seven years old and worth very little. Also, knowing its full history, I’ll be more reassured it won’t break down or develop a costly fault that might leave them stranded.

But if I leased cars instead of buying them outright, it’d be a distinctly different story. I’d worry about them damaging my car, because its value at the end of the term can easily be knocked down by a dent. On top of that, insurance would probably cost more on a more valuable car.

Getting with the times

Maybe I’m a bit of a dinosaur. After all, owning a shiny new car would be far more affordable on a personal contract purchase deal because monthly payments are almost always far lower than hire-purchase deals or loans, as you’re only paying off the depreciation of the car. Perhaps I should get with the modern age and let go of my attachment to car ownership.

Do you buy or lease your cars? Have you switched to leasing since the recession to cut down on motoring costs?

Do you prefer to buy or lease a car?

I prefer to buy a car (75%, 190 Votes)

I prefer to lease a car (13%, 32 Votes)

I prefer not to have a car (13%, 32 Votes)

Total Voters: 259

Loading ... Loading ...

I prefer to buy cars new and keep them for a decent length of time. I traded in my last car after ten years. Doing this and keeping to under 10,000 miles a year are the ways I save money. My cars have been reliable and the last time I called out a motoring organisation was in 1989.

Jim Kenney says:
10 January 2013

I’m with Claire on this one, I have an 18 year old MX-5 and a permanent grin that a I just dont get from a modern car. I originally got the Mazda for £2k a few years ago as a 2nd car, but I soon ditched my shiny new 207 for the ultra reliable mazda purely because I like enjoying myself. It does 12,000 a year and I the only time I have ever called out a motoring organisation was for a motorcycle puncture 5 years ago. but then I have only been driving since 1979… I do keep the Mazda well serviced and whenever replacement parts are needed I generally go for an upgrade, so she improves with age, which is also nice. So my take on it is that if you like something, why not own it and improve it – like a house.
In terms of cost, I spend about £800 a year on tyres, MOT, maintenance, etc on top of the £2,000 outlay (that I would recoup tomorrow if I sold it). So it is hardly expensive motoring, though granted, modern comfort and are attractive. Besides, whenever I have had cars on finance, there was always a bun fight at the end regarding the final settlement – they generally fabricate a catalogue of imaginary dents and scratches. Finance companies are rarely pleasant people to do business with and they aren’t doing it for your benefit.
And another thing, I think I am correct in saying that new cars are often less reliable than slightly older ones (esp French wiring?) due to designed in obsolescence, and anyway, why would you want a car without a spare wheel or one that costs £50 to change an unreachable headlight bulb? Any thoughts anyone?

I feel that if someone else owns your car and lends it to you, they are going to do it for a profit so you will end up with more expensive motoring costs than proper ownership. Just like the nonsense of PFIs on a smaller scale. I keep my cars a long time; currently I have a 1994 and a 2004 car and would rather spend money on maintenance than depreciation.

I bought a car on 0% finance on HP over 3 years, and kept it for another year and a half. Then I replaced it with another (same model) on 0% finance but its PCP this time. I’ll still keep it though at the end of the term, as I feel 3 years is too soon to change my car. I love it too much to let it go after that time. If there was any interest on the finance I would have kept my previous car.

A car to me is purely a utility object. When I lived in the countryside with a school going child, a car was essential for transport and my car/train/bike commute. My annual mileage was about 12000. I needed exclusive access to a vehicle.

I now live inside the M25 circle. My daughter is at Uni and my commute is bike/train and my annual car mileage is about 1500 miles. I own a car because it’s paid for but I would never replace it under current circumstances. Rental/share/lease would be a far more cost effective option for the occasions when I need one.

Jim Kenney says:
11 January 2013

I was exactly the same with years of owning utility mondeos and peugeots but part of the comment was about owning something that floats your boat. So if you can enjoy owning a car as well as it being a functional tool, why not? I emphasise the word ‘if’ as clearly not everyone is going to find one they like.

My partner used to have a car on a personal contract purchase scheme, and I don’t think he’d ever do it again. He didn’t realise he had to set a personal mileage limit at the beginning of the scheme, and so his limit was sat radically below the mileage he actually ended up doing.

As a result, when it was time to decide whether to buy the car or hand it back to the dealer, we found he’d be charged £1800 just to give the car back due to his excess mileage. As a result, he took the decision to buy the car, which meant finding the lump sum of £5000 to pay it off. And for the three years he did have the car on the scheme – he was extremely concerned by every dent and scratch it inevitably picked up along the way. Overall, I’d say for us – it wasn’t worth the worry.

Jennifer, I’d tend to agree.
Obvious really if you think about it contract purchase schemes and car leasing outfits are not charities, they’re in it to make money, so as the only source of that money is the customer it stands to reason that the customer is bound to get less of a deal.
Lease car outfits buy cars, so can you.
Contract purchase schemes need to arrange finance, so can you.
Both Contract purchase schemes and Lease car outfits need to arrange servicing, so can you.
None of it is really that difficult.
Stands to reason if you can do without these people you’ll be better off, and not be obliged to comply with restrictive and potentially expensive rules either.

ipmorg says:
11 May 2016

I have always bought my cars but for the first time I’m doing PCP deal on a new car…ever. What changed my mind was this quote. “Why would you invest money in something that you knew would instantly be worth less the moment you bought it”.

Whether buying or doing a PCP you still pay for that depreciation – it’s built into the price. Don’t be fooled by lower monthly payments. Remember to add to that the deposit you put down and the fact that there is a balloon payment looming at the end of the term which is gaining interest charges through the deal. It’s somewhat ironic that dealer sell the idea of PCP (Personal Contract PURCHASE) on the premise that you can switch your car every few years (I.e. Never actually purchase it!) just pay above the odds to rent it. The question could also be phrased “why would you invest money and pay interest and depreciation charges on something you know is instantly worth less and you will never own if you repeat the process with a new PCP”.

I’ve done several PCPs and always changed into a new car near the end, repeating the cycle of deposits etc. It’s never really worked out financially as indicated. I also question the industry language describing this as a deposit – it’s not. It’s an advance payment. It’s very rare you will get back more than a few hundred in equity – if you do it’s normally because you overstated your annual mileage and have come in under that target.

Until now, I have always bought my cars outright whether new or second-hand and usually kept them for more than 5 years with regular servicing plus tender loving care. I confess to the pride and satisfaction of actually owing something that is nice to look at, drives well and get’s good reviews but the same can be said for many other material possessions in our modern world, (watches, TVs, cameras etc). However, I have now decided to dip my toes into the PCP world with my next new car and have been agonising over whether this is a good or bad idea. I have savings that could buy the vehicle outright but mean a large lump of capital gone and the loss of reasonable discount. I have done umpteen sums and permutations and I understand that somebody is earning interest from me, but having crossed that psychological barrier into renting rather owning my deal gives me the car I have always wanted, lower monthly payments than HP, a guaranteed ballon value / payment which I can still afford and I have carefully chosen an annual mileage that is truly reflective of its planned use. Scratches and dents I will have repaired as I would if I owned the car. Also for my personal circumstances, I will have a larger capital sum left in my bank which I can invest or use for other unexpected outgoings. Seems a good deal for my personal circumstances and that, I think is the key, horses for courses, as they say.

Someone is making money out of you with a PCP. You have to think about extra mileage charges as well don’t you? Have you looked at taking out a personal bank loan (mine charges 4.9%) and then striking a deal with the seller – I got 24% off my new car. I am happy to keep it for 10 years and fund any necessary work.

Yes, I think I have included all factors in my calculations including the total amount of interest I am paying over the whole PCP term. Like you, I have struck a deal where taking the combined up front discounts into consideration mean I am paying “only” a grand more over four years than buying the same vehicle for cash now. The PCP APR is also virtually the same compared to different types of personal loan from my bank, which I did check. Furthermore, I have calculated that my cash lump sum not spent outright on the new car can be invested in the stock market and even at a conservative 3% compounded gain over four years will more than cover my extra £1000 that I am paying to someone for the PCP deal, (yes I know investments can go down as well as up, but that is an acceptable risk to me). As background, I have been to several dealers with different new car options and all have been totally disinterested in giving me a discount on a new car cash purchase….they obviously make more as a dealership with these PCP type deals. I fully agree that PCP deals have to be approached with your eyes wide open, but apart from the change in outlook from ownership to rent/purchase…..I think you can still find an PCP arrangement that works to your advantage.

Many dealers offer discounts, provided by the factory, which shelter under their finance offering. Simply take the discount, cancel the finance is what they advise.

Not quite the same I know, but when I rented a TV some years ago now, the agreement was I got a brand new one every 2 years. When I started the TV was quite a good one, but the spec dropped as better ones came along and if I wanted a better one, I was going to have to pay a lot more for it. Renting suited me at the time as I couldn’t afford to buy a colour TV outright and didn’t want to buy on HP.

When you have gone to car dealers have you mentioned both buying new and PCP to them? If so, they are less likely to offer you a discount if they think they can catch you with PCP.

I suppose you have to consider what happens when you decided to end PCP. What if you are not happy with the car? Can you afford the get out and will you be able to finance a car post-PCP?

It does sound a bit like the never-never in the long term and you do have to be careful not to understate your mileage.

I would like to comment on the realisation by dealers that PCP now gets a bad name, as noted above; and they are turning to PCH, or Personal Contract Hire, whereby the rates are lower per month, but at the end of the term the car is simply returned (so no further purchase or car to consider). I was shown a deal on a £40k Volvo which seemed to show I would pay £25k over 4 years and then hand it back (with the usual caveats over mileage and “wear and tear” costs). However I then noted a “28% taxable liability” comment nestled in the quote, with no further explanation, and remembered from my Company Car days that for a company car this was a taxable income figure based each year on the NEW CAR cost and paid at my marginal tax rate (40%), in this case £40k x0.28×0.4 = £4.5k pa, or £18k over 4 years , making MY COST to own £43k.
In further taking into account that in OWNING the car at 4 years, its residual value would be ca £15k, the PCH route would COST ME £58k over a purchase deal with “cash and a trade-in”.
I would be grateful if Which could consider this case, including the “hidden” tax implications, and investigate the growth of this ( now heavily advertised in the motoring press) PCH option.