Car leasing/PCP. Am I missing something?

molerat

Ganga said:

treeroy said:

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?

You will usually get a bigger discount on the car if you finance it rather than if you pay cash where you'll have to pay the RRP.

For instance.
I bought a car 3 years ago that had a £21K RRP.

My lease had me pay £7,200 over three years on a 12,500 mile agreement.

The car three years old is now worth around £9,000.

If I had paid cash, and sold the car after 3 years, then it would have cost me £12,000. Because I leased, it cost me £7,200. 

That is a not insignificant saving.

Am i reading this right ,you have paid £7,200 but you do not own the car! you have only rented it. Apologies if i am wrong.

Yes but he has spent £7.2K renting and now has an asset value of £0

or

could have spent £21K and if sold would realise £9k, a cost of £12K, £4.8K more than renting.

sebtomato

So basically, if you can get a large discount on the car and a 0% deal, it's worth taking finance. Otherwise, may as well pay cash and save on interest.

bigadaj

sebtomato said:

So basically, if you can get a large discount on the car and a 0% deal, it's worth taking finance. Otherwise, may as well pay cash and save on interest.

Much of the time it will be take finance to get incentive then pay off with cash to ensure little or no interest is paid.

WaywardDriver

sebtomato said:

So basically, if you can get a large discount on the car and a 0% deal, it's worth taking finance. Otherwise, may as well pay cash and save on interest.

But the cash has to come from savings which means a loss of interest on say £k30 for 4 years. You need to do the calculations.
The large discount is still possible with cash by taking out a PCP deal then paying off in full within 14 days. 

sebtomato

WaywardDriver said:

sebtomato said:

So basically, if you can get a large discount on the car and a 0% deal, it's worth taking finance. Otherwise, may as well pay cash and save on interest.

But the cash has to come from savings which means a loss of interest on say £k30 for 4 years. You need to do the calculations.
The large discount is still possible with cash by taking out a PCP deal then paying off in full within 14 days. 

Understood, but if my savings are getting a 1% rate, and PCP finance is costing 5%, it's quite easy to compare. Of course, savings rate could increase over the next 3 years, but difficult to predict the average rate over the period would exceed 5% (after tax).
I know people say that some manufacturers are giving large discounts on some cars when bought on finance, but it's usually on cars difficult to sell, and I suspect large discounts would also be possible on the very same cars when buying upfront.

For instance, I am looking at Audi: purchasing a new A3 on PCP has an APR of 5% and car won't be discounted (new model has just been released). However, they seem to have massive discounts on some A4 models (like £9K discounts on list price).

On a Ford Focus, PCP seems to be available at 0% APR, and there is a Ford deposit contribution of £750, so that's a good deal compared to buying with cash.

WaywardDriver

sebtomato said:

WaywardDriver said:

sebtomato said:

So basically, if you can get a large discount on the car and a 0% deal, it's worth taking finance. Otherwise, may as well pay cash and save on interest.

But the cash has to come from savings which means a loss of interest on say £k30 for 4 years. You need to do the calculations.
The large discount is still possible with cash by taking out a PCP deal then paying off in full within 14 days. 

For instance, I am looking at Audi: purchasing a new A3 on PCP has an APR of 5% and car won't be discounted (new model has just been released). However, they seem to have massive discounts on some A4 models (like £9K discounts on list price).

Deposit contribution on A3 is £1000 plus 3 months free i.e. 44 payments over 47 months.

32Battalion

sebtomato said:

For instance, I am looking at Audi: purchasing a new A3 on PCP has an APR of 5% and car won't be discounted

That is why you must look for the deal and not the car.  If you want to drive the new A3 you are going to have to a pay a premium for the privilege.  Now if you want to be truly MSE you could try and hunt down the  old model and check what deals are available.

sebtomato

WaywardDriver said:

sebtomato said:

WaywardDriver said:

sebtomato said:

So basically, if you can get a large discount on the car and a 0% deal, it's worth taking finance. Otherwise, may as well pay cash and save on interest.

But the cash has to come from savings which means a loss of interest on say £k30 for 4 years. You need to do the calculations.
The large discount is still possible with cash by taking out a PCP deal then paying off in full within 14 days. 

For instance, I am looking at Audi: purchasing a new A3 on PCP has an APR of 5% and car won't be discounted (new model has just been released). However, they seem to have massive discounts on some A4 models (like £9K discounts on list price).

Deposit contribution on A3 is £1000 plus 3 months free i.e. 44 payments over 47 months.

Yes, but I believe the APR takes into account those facts, and is still quite high at almost 5%... 

sebtomato

32Battalion said:

sebtomato said:

For instance, I am looking at Audi: purchasing a new A3 on PCP has an APR of 5% and car won't be discounted

That is why you must look for the deal and not the car.  If you want to drive the new A3 you are going to have to a pay a premium for the privilege.  Now if you want to be truly MSE you could try and hunt down the  old model and check what deals are available.

32Battalion said:

sebtomato said:

For instance, I am looking at Audi: purchasing a new A3 on PCP has an APR of 5% and car won't be discounted

That is why you must look for the deal and not the car.  If you want to drive the new A3 you are going to have to a pay a premium for the privilege.  Now if you want to be truly MSE you could try and hunt down the  old model and check what deals are available.

Completely agreed. There were some excellent deals a few months on the old model, as the new one was on its way. Now, there won't be any deals on the new one in the near future, as lots of people would have delayed their purchase waiting for the new model.