Car Advice: Leasing v Credit Card Repayments

stucosby

Hi I would appreciate other people’s views on my situation; I really can’t decide what the best course of action is. I drive approx. 20,000 miles per year – mostly to and from work. 2.5 years ago I bought a nice second hand BMW for around £10,000 on a credit card. It’s now worth around £5,000. I currently pay just £65 per month off and occasionally more when I have the bonus money.

Now we’re in a New Year (and my student loan has just been paid off – hooray!) I wanted to start repaying it more aggressively – more like £350 per month. The outstanding balance is around £5,500.

Very recently, however, my car has started to become unreliable. It’s now at 100,000 miles and I have an imminent repair bill estimated at £500-£1,000.

I am seriously considering selling it and going for a lease instead. The money I get for the BMW would pretty much clear the credit card and then it would just be the deposit (around £1,000) and monthly lease payments.

I have been looking at the Qashqai. By my estimates it would cost £289 per month on a 2 year deal - less around £80 per month saved through better fuel economy, no road tax etc. So in very rough terms, £200 per month for a new car with no credit card debts. I understand that going for a lease car is something of a luxury – and of course it would be a treat and not the cheapest thing to do per se, but I worry the current car is going to start costing more and more.

I could do a 3 or 4 year lease to get the monthly payments down but I have an eye on moving house in a year or two...

I’m put off buying another good (newish/reliable with low mileage) car for around £10,000 as this too will likely lose £150 per month in depreciation alone. I know I wouldn’t have anything to show at the end of the lease but I’d have a reliable car for the duration and it’s important for my job (and family) to have a safe and reliable car.

I would appreciate all comments.

foxy-stoat

Pay the repair bill and keep driving it until it hits 200,000 miles and look at your financial situation again in the future.

If you are going to lease a new vehicle, look very carefully at the terms and conditions - your mileage is probably too high to think about leasing.

stucosby

foxy-stoat wrote: »

Pay the repair bill and keep driving it until it hits 200,000 miles and look at your financial situation again in the future.

It's the uncertain repair bills that are the worry. I had a repair bill for £385 in Feb, a service for £225 in December and then this repair bill of £500 - £1,000. That alone is £100-135 per month.

foxy-stoat wrote: »

If you are going to lease a new vehicle, look very carefully at the terms and conditions - your mileage is probably too high to think about leasing.

20,000 is the upper limit on a lot of website companies figures, but seems fine.

foxy-stoat

stucosby wrote: »

It's the uncertain repair bills that are the worry. I had a repair bill for £385 in Feb, a service for £225 in December and then this repair bill of £500 - £1,000. That alone is £100-135 per month.

............or £0.08 per mile - which isn't too bad. Whats going to cost £500-£1000, clutch/flywheel/turbo ? Assuming once that is done then you shouldnt have to worry for a while - only the annual service, tyres and brakes.

Unless its the N47 with a suspect timing chain issue that you cannot get fixed for free, then its more cost effective to keep what you got, unless you need justification to lease a new car. Even though once these issues are sorted, theres no reason why this car shouldnt least for another 100,000 miles+.

stucosby

foxy-stoat wrote: »

............or £0.08 per mile - which isn't too bad. Whats going to cost £500-£1000, clutch/flywheel/turbo ? Assuming once that is done then you shouldnt have to worry for a while - only the annual service, tyres and brakes.

Unless its the N47 with a suspect timing chain issue that you cannot get fixed for free, then its more cost effective to keep what you got, unless you need justification to lease a new car. Even though once these issues are sorted, theres no reason why this car shouldnt least for another 100,000 miles+.

Turbo...

I think you're right from a financial perspective - it's just the unknown that worries me. Sometimes I prefer to pay a higher constant than a lower variable if that makes sense.

Is there ever a financial reason for going for a lease?

dannyrst

foxy-stoat wrote: »

Pay the repair bill and keep driving it until it hits 200,000 miles and look at your financial situation again in the future.

If you are going to lease a new vehicle, look very carefully at the terms and conditions - your mileage is probably too high to think about leasing.

Rubbish. If the OP wants a relatively new car, it makes more sense to lease than buy, more so given the high mileage.

You need to look into your options with leasing and not narrow yourself down to a single make/model. For example, you can find it is cheaper to lease a car with 15k miles and pay the 5k excess mileage than it is to pay for 20k miles. It is a complete minefield of numbers and calculations but aslong as you spend time working it out, it makes sense.

foxy-stoat

stucosby wrote: »

Is there ever a financial reason for going for a lease?

The fact that you can drive a £30,000 car for £300 a month has its appeals.

Crunch the numbers to see if it works for you, having a fixed payment has good points but its also bare in mind that the term is fixed as well so you will lose your flexibilty if you tie yourself into a lease deal should your situation change in the future.

bowlhead99

foxy-stoat wrote: »

The fact that you can drive a £30,000 car for £300 a month has its appeals.

Crunch the numbers to see if it works for you, having a fixed payment has good points but its also bare in mind that the term is fixed as well so you will lose your flexibilty if you tie yourself into a lease deal should your situation change in the future.

This is all true. Yes there can be sensible reasons for going for a lease rather than buying outright. Businesses lease all kinds of assets from other businesses all the time.

Of course, bigger businesses have buying power and the financial clout to hammer down the leasing costs and minimise the profit margin made by the lessor. Individuals in a 'retail' world looking to get something from a big leasing business, have rather less ammunition.

As mentioned by the others above, you have to shop around carefully and critically as there are all kinds of wacky deals and the prices for different mileage on different models with different lengths of terms can differ substantially. Sometimes you will see lower payments on a car with a higher RRP, because it depends on the projected residual value of the car at X years and Y miles, and also the discounts available to the lease company when buying the new car, (which may be discounts which are unavailable to the man on the street).

One thing to think about is you are comparing the lease costs of a high mpg car with the total ownership costs of your current one which has lower mpg. You are thinking lease costs of £289 but saving £90 on fuel so it's only £200 really and not much worse than the depreciation of £150pm if I was just buying a £10k second-hand car. But that £10k second-hand car would presumably also come with similar mpg savings because you would presumably buy an efficient one.

So if you move to a new (to you) £10k car which loses £150 pm in depreciation, that would ALSO benefit from the £90 fuel savings so is really only costing £60pm - by the exact same logic you are using to pretend a £289 lease only costs £200. So the lease version at £289 versus the depreciation of an owned car at £150, is still a difference of £140 because the mpg of either of your replacement cars would be broadly the same. That £140 a month would go a long way to paying the higher servicing costs of the older car and importantly, there would still be a car on your driveway at the end of the term, or changeable at any point before the end of the term if and when your circumstances change and you are no longer doing 30k business miles and no longer need a car of that size and spec.

So you have to consider what the true costs of ownership are and compare them to the true cost of leasing and only then can you decide which one is more expensive by how much and only then can you decide whether that premium is worth it - whether for the 'new car, hassle free' experience of leasing or the 'flexibility' of actually owning something.

mark5

I lease at the moment and it's probably the cheapest way of running a new car but obviously more expensive than running a second hand car.

Don't take a lease longer than the warranty is valid and also look at what services are due and when, for example I have to get the break fluid changed and the car mot'd before I return it at 3 years old.

In years 4-5 my lease car will probably need close on £1000 spent on it at main dealer prices so best not to still have it on lease then.

stucosby

I suppose what it boils down to (financially) is do I want to spend £300 per month for 1.5 years to pay off a good but aging (problematic?) car and then have this as an asset worth £3k/£4k at the end OR do I want to spend £200 per month for 2 years on a brand new and nicer car (the £200 includes a provision to cover the next down payment once the 2 year lease is up, should I wish to continue down the leasing route).

:undecided

stucosby

bowlhead99 wrote: »

One thing to think about is you are comparing the lease costs of a high mpg car with the total ownership costs of your current one which has lower mpg. You are thinking lease costs of £289 but saving £90 on fuel so it's only £200 really and not much worse than the depreciation of £150pm if I was just buying a £10k second-hand car. But that £10k second-hand car would presumably also come with similar mpg savings because you would presumably buy an efficient one.

This is a good point but to buy a newish/fuel efficient car would need to be 2-3 years old and for £10,000 we're talking Fiestas, Skodas, Peugeots. I'd prefer something more practical and a little nicer, especially considering the additional outlay...