Car leasing - big deposit and small payments or vice versa

MORPH3US

Hi guys,

I am ready to sign on the line for a car lease tomorrow but need some help to make sure I haven't missed anything...

The deal options are:

£1729 deposit and then £99 a month = £5293 over the 3 year term

or

£400 deposit and then £157 a month = £6052 over the 3 year term

APR and everything doesn't come into it, we will hand it back at the end.

The bigger deposit seems the best option due to the overall cost saving of £759.

Obviously I need to dip into savings at the start for the extra £1329 and over the year stand to lose £39.87 in compound interest at 3%. This could potentially be £79.74 if interest rates were to rise to 6% (hope I calculated that right)

So overall £759 saving minus £80 (ish) interest lost = about £680 saved still.

Is there anything I have missed there....

What would you do (assuming you had the two options above, please no "i wouldn't buy new" etc)

Thanks

M

* I haven't deducted tax from the interest as assuming ISA

catflea

TBH if you can afford the deposit it seems pretty stupid to pay £780 extra for something

Interest rates wont rise to 6% - at the moment you are lucky to have a 3% account

Also, how does 759-80 = 470?

And no, I wouldn't buy new

Hintza

Can you pay an even bigger deposit? That would make even more sense?

MORPH3US

catflea wrote: »

Also, how does 759-80 = 470?

Whoops, typo... was typing it out whilst looking at some spreadsheets at work

Scuttsy

Whoa there, be careful here.... Just a thought think about what you anticipate your situation will be in 3 years time when you hand the car back. If you have gutted your savings to keep the monthly payment down will you replace those savings over the next 3 years. If not you may find that you hand the car back are £99 a month better off but suddenly find you are without a car and struggling to find another for £99 per month.

Although you will pay more in interest you will not be potentially setting yourself for a shock in 3 years. Also if you are looking at a PCP type product APR very definately does come into the equation, don't believe the salesman who says it is a fixed rate because it is a rental. Everything is always negiotiable....

MORPH3US

Thanks for the reply scuttsy but either I or you are very confused about PCP.....

To address your points:

- firstly I won't be gutting my savings, only using a small portion of them and since I am buying the car to enable me to take a new job paying more money then its not an issue.

- if I do use some of my savings to pay the bigger deposit, all I will do is "borrow" it from my savings. Then rather than just paying the £99 a month to the finance co, I will also pay the extra £58 per month (as if I had paid the smaller deposit) back to my savings until the bigger deposit loan had been repaid.

- The bit that you have really confused me with is mentioning "interest" and saying that "APR very definately does come into the equation"

As I mentioned, I WILL hand the car back after 3 years. My understanding of PCP is that if I do hand the car back then I won't have to pay anything further and so APR won't apply.

Only if I keep the car (which I won't) will I have to pay the remaining cost of the car, to which interest would apply.

Perhaps given what I have said above, you could clarify if your post still applies? And if it does, if you could explain because I thought I understood PCP but you have made me think maybe I don't.

Hintza

Why not just buy the car (if you can)? What is the APR (7-8%) versus the poor return that your savings are acheiving.

As you say you need to replenish those on a monthly basis but it would make more financial sense if you can afford to do that.

Scuttsy

Morph3s,

You seem to have the right idea replacing the savings that will work for you. But even if you hand back the car at the end of the agreement you will have paid interest on the money over the 3 year period.

If you doubt me do the maths, add up your deposit plus the payments plus the final payment figure. This is the total owing over the agreement. Any extra this is over the price you pay for the car is interest. This is negiotiable on a pcp usually. Check what APR the agreement is any dealer has to tell you. Where are you buying from a main dealer or other broker?

Is it definately a PCP you are getting or is it contract hire?

MORPH3US

Hi Hintza,

We have done the buying thing before - bought a brand new Fiesta for £8k, had to take a loan for that over 5 years. We worked out after 3 years that the car would be worth about £4100 and we would owe about the same amount on the loan so effectively if we sold the car and paid off the loan we would be left with nothing. PCP is exactly the same but the benefits are:

1. No hassle selling the car, just hand it back
2. We can get a much better (more expensive) car for the same monthly cost

Whilst we could probably afford to buy the car outright from savings it would leave us with no savings whatsoever and I am reluctant to do this, we have a nice little "emergency savings" pot in case one of us should lose our job... we could live off it for about a year including paying off the mortgage if we had to. I don't want to lose that security.

@ Scuttsy - I see what you mean about interest, but that is factored into the monthly payments in the first three years. The actual APR cost is only on the outstanding balance at the end right?

We are buying from a main dealer and it is definitely PCP and not contract hire.

I couldn't see any advantage of contract hire as its the same as PCP but just without the option to buy at the end right?

Scuttsy

Hi Morph3us,

I agree with your reasoning behind the PCP. But Interest is applied throughout the agreement. Therefore my original post about checking the APR is very applicable. If you doubt me just ask to see the pre contract for the loan. All charges will be shown on there including flat rate of finance, APR and total charges. The APR should still be competitive as you will be paying this interest.

Also maybe check contract hire rates as you are certain you will hand the car back therefore the option to buy doesn't really matter anyway? Make sure your contract hire quotes include VAT.

MORPH3US

Right here is the costings:

OTR Price: £10,190.00
Deposit: £1,729.00
Retailer deposit contrib. £24.34
Total Deposit £1753.34
Number of Payments 36
Monthly Payment £99

Optional Purchase Payment £6,275.00
Amount of Credit £8,436.66
Total Charge For Credit £1,637.34
Total Amount Payable £11,827.34
Total Amount Payable by Cust £11,803.00
Acceptance Fee £140.00
Purchase Activation Fee £95.00

7.6% APR typical

Now my understanding is I only pay the items in Bold and then hand the car back. Is this not correct?

Now I know that some interest is built into the monthly payments, but my understanding is that what is in bold above is all I pay and nothing more. Therefore anything not in bold above is irrelevant as I see it but you are really confusing me (although your help is appreciated)

Yes VAT is included.