The car ladder?

adamjpl

Hello all. I will start by saying I consider myself a complete petrol head! I’m 26 and since I turned 23 I’ve always went with the lease option to get my hands on new performance cars. Starting off with an A45 and then switching to my current M2 competition you can see my passion for things that go fast and pop and bang. I’ve come to realise the only way I can keep getting into these cars is with massive financial outlays and massive monthly payments. Luckily I can afford these payments as well as save every month into a new car fund, I have my own flat as well as investments in a shares fund held in an ISA which I make monthly payments towards. However I want to continue to get into better and better cars but I feel with a lease I lose ALL the money that goes into that car during the lease period. My question is should I get a bank loan and finance a used sports car that way, slowly working my way up to better and better cars or should I take advantage of PCP deals and do it that way? I’m not sure on the ins and outs of PCP if I am losing 100% of the money with that as well. Unfortunately driving a car I don’t like the looks of or enjoy the feeling of driving of is not an option for me. Any advice is greatly appreciated thanks!

AdrianC

However you finance a brand new car, it depreciates. Somebody has to pay for that depreciation, as well as the costs of the money that you're borrowing.

Buy used, the depreciation is less, but other costs may be higher.

You want expensive shiny things, they cost money.

Goudy

I don't understand you losing all your money?? You use the car and that has a cost, it called depreciation.
This is true of any of the ways to lease or finance a car.
You buy one cash, HP or PCP, you use it, it depreciates and you pay for that.
You lease someone else's car, you use it, it still depreciates and you pay for that.

There's no real way around it and I reckon there's not much between them.
Buy a 40k and it'll likely be worth 20k in three years and depending how you finance it, you could be paying interest on that 40k.

Lease the same 40k car for three years and it'll likely cost 20k spread over the three years plus some profit to the finance house that leased it to you.

With a PCP you're buying a 40k car (with interest) but deferring the 20k which means your initial payments are 20k plus the interest on the whole 40k divided by 36 months. After which you have an option on the last payment which is the deferred 20k, you can pay it and keep the car, hand it back to the finance house (and pay nothing except any damage/excess mileage charges) or trade it in with any positive/negative equity brought over to your next deal. 

MEM62

adamjpl said:

I’ve come to realise the only way I can keep getting into these cars is with massive financial outlays and massive monthly payments. 

No it isn't.  

adamjpl said:

 However I want to continue to get into better and better cars but I feel with a lease I lose ALL the money that goes into that car during the lease period. My question is should I get a bank loan and finance a used sports car that way, slowly working my way up to better and better cars or should I take advantage of PCP deals and do it that way? 

Your problem is you are adding large amount so interest to your depreciation on each car.  If you want to climb the ladder quickly you need to stick to vehicles that you can afford to pay for in cash.  That way your only losses (apart from running costs) are from depreciation and you will climb the ladder faster.
Personally, I have never seen the point in paying interest to purchase an asset with a value that falls like a stone.  Frankly, its nuts.     

Mobeer

Regardless of the financing approach, these sort of cars remain toys that lose their financial value but put a smile on your face. The only way to avoid this depreciaton are:
- buy a cheap car and live with this [and put a paper bag over your head]
- look for something fun but old and hope that it appreciates in value whilst you drive it a little, rather than costing a fortune in maintenance

adamjpl

Goudy said:

I don't understand you losing all your money?? You use the car and that has a cost, it called depreciation.
This is true of any of the ways to lease or finance a car.
You buy one cash, HP or PCP, you use it, it depreciates and you pay for that.
You lease someone else's car, you use it, it still depreciates and you pay for that.

There's no real way around it and I reckon there's not much between them.
Buy a 40k and it'll likely be worth 20k in three years and depending how you finance it, you could be paying interest on that 40k.

Lease the same 40k car for three years and it'll likely cost 20k spread over the three years plus some profit to the finance house that leased it to you.

With a PCP you're buying a 40k car (with interest) but deferring the 20k which means your initial payments are 20k plus the interest on the whole 40k divided by 36 months. After which you have an option on the last payment which is the deferred 20k, you can pay it and keep the car, hand it back to the finance house (and pay nothing except any damage/excess mileage charges) or trade it in with any positive/negative equity brought over to your next deal. 

This makes it a lot clearer for me. Either way I’m going to lose but would I rather hop in and out of a brand new car every few years or jump from used to used every few years and deal with repairs, MOTs and road tax? All of my contracts cover the road tax, repairs and no MOTs so I save in that regard. I think I’ll continue to lease until hopefully one day I get bored and grow up a bit.

Herzlos

You can have huge petrol head fun for very low outlays if you are being creative.

There are some ludicrous performance cars out there that you can buy outright for a years lease payments on an M2. Maybe not quite as flashy and without the toys.

Toyota Supras, Nissan Skylines, older M3/M5 and so on.

AdrianC

Remember that £20k depreciation over 36 months is £550+ per month. Before the interest on the financier's money that you've tied up in the car...

"Repairs, MOT, tax" are not a fraction of that.

MinuteNoodles

adamjpl said:

This makes it a lot clearer for me. Either way I’m going to lose but would I rather hop in and out of a brand new car every few years or jump from used to used every few years and deal with repairs, MOTs and road tax? All of my contracts cover the road tax, repairs and no MOTs so I save in that regard. I think I’ll continue to lease until hopefully one day I get bored and grow up a bit.

Just how much do you think cars cost to run? You have to tax every single vehicle on the road and even though you're not buying it yourself you'll be funding the tax in the lease price. MOTs I've never paid more than £35 because there's always someone doing them on offer but if your lease is over 3 years they'll have included the full cost in the lease price. Modern cars almost never break down in the first few years so it costs the lease company next to nothing in repairs but they'll put in an amount on the monthly payments for that so no you don't save in that regard at all, in fact you actually are probably paying much more than it would've cost you if you funded those yourself. My last car I had for 8 years and did over 100,000 miles, sold it to my parents with 155,000 on the clock and it had maybe £500 of repairs in its entire lifetime and never failed a MOT. The previous car I owned for 5 years, sold it to a friend with 168,000 on and that had about the same amount of repairs in its lifetime and only ever failed one MOT on a sticking rear brake caliper handbrake mechanism which cost me £80 to get fixed.

adamjpl

So I decided i'd run the numbers on my current car and see which option was the cheapest in the long run.
Autotrader price new M2 comp DCT - £50475.
Leasing
Deposit 9 x 459.00 =  4131
23 months x 459 = 10557
Total cost of lease = 14688 over 2 years 16k miles
Saving for new car = 187.50 per month 
Total towards cars per month (Lease + Savings) = 646.50
Buying car outright
Deposit = 4131 (Cash) + 46344 (Loan over 6 years with 0% interest which happens never)
Monthly outgoing on car = 643.67 assuming 0% interest. 
after 23 months I'll have paid 14804.33 towards loan
Remaining balance = 31539.67
Car value with 16k miles = 31540 part exchange / 33760 private sale according to autotrader. Garages are selling for 39k for one with 6k miles on the clock which was the cheapest and highest mileage I could find so I don't think the valuation is too far off/might even be too high. 
Therefore in this instance and with the contract I am actually on it is cheaper in the long run to lease this vehicle than finance it. That removes the ambiguity I was seeing above.  

AdrianC

£4k down plus £10,500 over 2yrs = £14,500 for 16k miles = 90p/mile or £605/month, £20/day. Before insurance, fuel, etc etc.