Car leasing/PCP. Am I missing something?

sebtomato

It seems that leasing a personal car is fashionable nowadays, but I don't really get it.
Are there any financial incentives compared to cash buying?
Surely, leasing a car (or PCP) is a loan and more expensive than buying the car upfront?
If I wanted to get a £25K car and have the cash to buy it upfront, are there any benefits of leasing it instead? If I consider the opportunity cost of not investing the £25K in something else, isn't leasing always more expensive?

[Deleted User]

On 0% finance and with the intention to buy the car at the end, PCP is great as you can save the money and earn interest on it. I bought a new one on 0% finance, paid off the balloon at the end, car is still fine, the world didn't end after 42 months when I paid it off and hasn't ended 6 years later just because my car doesn't say 20 on it. I earned over £1000 in interest (thanks Santander 123!) on the 20k sat in my bank that wasn't in the dealer's pocket. The car will eventually die, hopefully not for 5-10 years by which time I can get a new one.
The problem with it is when you are paying interest or don't have a plan for the balloon and end up stuck in a cycle of new car every 3 years and paying 3-4x the cost and never getting a car. You could also play the system, take out finance for any sort of dealer incentives, then pay it off and pay little or no interest.

neilmcl

sebtomato said:

It seems that leasing a personal car is fashionable nowadays, but I don't really get it.
Are there any financial incentives compared to cash buying?
Surely, leasing a car (or PCP) is a loan and more expensive than buying the car upfront?
If I wanted to get a £25K car and have the cash to buy it upfront, are there any benefits of leasing it instead? If I consider the opportunity cost of not investing the £25K in something else, isn't leasing always more expensive?

Nearly all main dealers/manufacturers will offer financial incentives to take out their finance deals. Quite often this can be exploited by cash rich buyers by taking on the finance to get the deal then cancelling/settling shortly after.

BTW, leasing and PCP/HP (finance) are two different things.

32Battalion

Manufacturers can you leases as a way to shift stock without outright discounts being visible to the market usually for unpopular models or cars about to be superseded my a new model.  Alternatively you may find great lease deals after the furlough period ends

For lease cars you must look for the deal and not the car (ie don't decide on a shiny new Audi or BMW as you will pribably not get a deal)

To find a good deal you need to know what it looks like and for that you need to start doing your homework and run some spreadsheets and be ready to deal when you see it (don't fall for any you have a 6 month wait nonsense, if it ain't in stock it probably never will be).

Back in the day I reckoned a great deal per month was less than 100th of the price I could buy it for new, I don't know if that holds true or not now but you will find a level.

Penelopa.Pitstop

If you plan to keep car for 2-3 years from new, leasing could be a good option. Assuming cost of leasing is much lower than actual depreciation. Deal must be good, not just first offer you find. So far, I went through 3 leased cars (PCH) and every time it was subsidised by manufacturer making it cheap. Have 4th car leased and in this case cost of leasing was similar to cost of depreciation, but I decided I don't want to take a risk if market dives and I will have heavily depreciating car on my hands. Also, I didn't have to freeze cash in the car.
PCP are rarely so good, unless there's significant manufacturer or dealer incentive or 0% on discounted car. Then it might be worth paying it off immediately or keep finance if it's 0%.

neilmcl

Personally I wouldn't consider a new car lease (PCH) unless you're certain of your finances/job prospects over the coming years. You have more flexibility and consumer protection with a PCP than you do with a lease hire. 

macman

VAT reclaim on lease charges if you are VAT-registered.

molerat

macman said:

VAT reclaim on lease charges if you are VAT-registered.

But generally only 50% https://www.gov.uk/reclaim-vat/cars

Dr_Crypto

I guess either way you are paying for the depreciation. If you change brand news cars every 3-4 years then I think PCP is actually a reasonable option. 
I crunched the numbers for my new motor and there is very little difference between a 4 year PCP and paying cash (rather taking the PCP and then clearing it). 
Say the car is £40k and it will be worth about 50% of that in 3 years. The cost of ownership over that period is £20k. If you have the £40k cash then by PCP you can keep the £20k and use it to work for you. 

DrEskimo

Dr_Crypto said:

I guess either way you are paying for the depreciation. If you change brand news cars every 3-4 years then I think PCP is actually a reasonable option. 
I crunched the numbers for my new motor and there is very little difference between a 4 year PCP and paying cash (rather taking the PCP and then clearing it). 
Say the car is £40k and it will be worth about 50% of that in 3 years. The cost of ownership over that period is £20k. If you have the £40k cash then by PCP you can keep the £20k and use it to work for you. 

Depends how much interest you are paying on the PCP.
 On a car that value it will easily add thousands in interest charges.

It's no different to buying anything on credit, vs not buying on credit.

born_again

So long as you want a new car every X years & are in a very safe & stable job to keep paying for it, then its OK. But at some point you have to either shell out for a car or be car less.
As a lot have found out thanks to Covid. Suddenly, they can no longer afford the monthly payments. So now have to find the funds to buy another car. But credit is no longer cheap.