Buy car with cash Vs lease and invest?

EVbuyer

I have recently come into some cash, and I'm trying to figure out what to do about buying my next car when my current car lease runs out next year. I want to buy an electric car, and I think I'll be looking at around £15k to get one that has the sort of range I need, and is around 3 years old. But the thought occurs, would I be better off* investing that £15k in something like a global index fund, and leasing a new electric car at say £250/month instead? I'd get a nicer, brand new car that way too. Ok, I wouldn't have equity from the remaining value of the car if I leased rather than owned, but I would have a few years of compound growth from investing the lump sum.

Just wondering what others who have cash available to buy a car outright do? Do you do that, or do you still get a car on finance and invest the cash instead?

*(When I say 'better off', I of course understand there are no guarantees, especially not in the short term, where investments are concerned).

Grumpy_chap

No-one can answer your question for certainty as there is a lot of risk with equity investments.

For you to do what you suggest, it would require a lease company (or their finance house) to have assessed they can make a better return from the capital by lending it to you than investing the same capital in equities.

EVbuyer

Grumpy_chap said:

No-one can answer your question for certainty as there is a lot of risk with equity investments.

For you to do what you suggest, it would require a lease company (or their finance house) to have assessed they can make a better return from the capital by lending it to you than investing the same capital in equities.

Oh wow, that is such a clear way of looking at it... and should have been obvious to me now I think about it.

So then why do I see people with good jobs, in later-middle life get cars on lease deals or PCP, when they must have built up savings and/or investments at that stage of life that they could have used to buy a car with outright instead? I assumed there must be some rational reason, but perhaps not? Maybe people don't trust themselves to pay the money that they would have been paying on monthly lease payments back into their savings/investments and like the simplicity of a single monthly payment that they're not allowed to miss holding them to account?

Grumpy_chap

EVbuyer said:

why do I see people with good jobs, in later-middle life get cars on lease deals or PCP

One of the great mysteries of the modern day.
Maybe they don't have such great jobs, but do have airs and graces to project to the outside world.

One time to consider finance is if there is an incentive, but you can pay the finance early thus retaining the incentive value as a discount but avoiding fees and interest.  Not usually so common on used cars, but worth investigating.

minnis93

Grumpy_chap said:

No-one can answer your question for certainty as there is a lot of risk with equity investments.

For you to do what you suggest, it would require a lease company (or their finance house) to have assessed they can make a better return from the capital by lending it to you than investing the same capital in equities.

Very true, but you forget that the lease company can source the car far cheaper than an individual could as they buy in bulk. Yes, individuals can often get discounts but not in the same league as a wholesale discount.
Plus, for OP - leasing and investing will likely cost slightly more than buying. Even more so if you're comparing 3 years old with new. But even if it costs slightly more in the long run, how much value do you place on having that 15k in the bank? If you have plenty of savings, then sure, you might not miss it. But if you dont have much to fall back on, what happens if you spend that £15k but your boiler blows the next day and you have no savings to fix it with? The security of having the cash available might outweigh the finance cost. 

ontheroad1970

minnis93 said:

Grumpy_chap said:

No-one can answer your question for certainty as there is a lot of risk with equity investments.

For you to do what you suggest, it would require a lease company (or their finance house) to have assessed they can make a better return from the capital by lending it to you than investing the same capital in equities.

Very true, but you forget that the lease company can source the car far cheaper than an individual could as they buy in bulk. Yes, individuals can often get discounts but not in the same league as a wholesale discount.
Plus, for OP - leasing and investing will likely cost slightly more than buying. Even more so if you're comparing 3 years old with new. But even if it costs slightly more in the long run, how much value do you place on having that 15k in the bank? If you have plenty of savings, then sure, you might not miss it. But if you dont have much to fall back on, what happens if you spend that £15k but your boiler blows the next day and you have no savings to fix it with? The security of having the cash available might outweigh the finance cost. 

What boiler costs so much that you need a 15k loan for it?  

Grumpy_chap

minnis93 said:

the lease company can source the car far cheaper than an individual could as they buy in bulk. 

how much value do you place on having that 15k in the bank? The security of having the cash available might outweigh the finance cost. 

The discount could, if passed on by the lease company, make the deal more advantageous.  I understand the lease company would only pass on as much of the discount as they need to "seal the deal" based on market pricing.  Though, of course, it means the lease company is only incurring finance cost on the "buy" price rather than the "sell" price.

Of course, you are correct that everyone needs to keep a "rainy day" fund.  But the OP was comparing spend the £15k on a car versus lease a car and invest the £15k in equities.  Certainly not the immediately accessible "rainy day" fund.  I took as read that the OP had a "rainy day" fund in addition.  If not, the OP should be setting aside a "rainy day" fund from the £15k and then buying a cheaper car with the remainder.

EVbuyer

Thanks all! I would still have a cash rainy day fund, plus other money in investments that I could draw from in an absolute catastrophic emergency.

I guess, in addition to the lease company finding good deals, one other thing to consider is the cost of trading in owned cars every few years. Unless you get lucky with private sales (which, I've found in my life to be so much hassle with dealing with scammers, people who ask to come see the car then don't show up, people who give ridiculous low-ball offers, etc. that you often give up and just trade-in), when you buy a car you will pay the salesperson more than it's worth, and when you trade-in a car back to a dealer you will get less than it's worth. That's how car dealers make money. On a car bought for £15,000, that differential could be £1,000+

Petriix

There are some heavy discounts on E-Niro lease deals right now: ~ £2k down then £220 per month. You couldn't 'buy' one for anything close to that. There are also some massive discounts on pre-reg MG ZSs if you want to stretch your budget a little and buy new.

Ebe_Scrooge

EVbuyer said:

So then why do I see people with good jobs, in later-middle life get cars on lease deals or PCP

I frequently ask myself the same question.  I guess it's a way of driving a brand-new car you can't really afford.  There are a lot of my neighbours that drive brand-new Range Rovers, Porsche Cayennes, etc.  Although we're in a relatively affluent area, I'm pretty sure most of them couldn't afford to splash out £50,000+ on a car.  Each to their own - but it's not for me.  I have little desire to own a flash car - OK, if I won the lottery then yes I'd be down to the Ferrari dealership like a shot.  But realistically, it makes much more sense to me to buy a good used car for £5000 or so, something that's reliable and practical, and keep it until it basically dies.  Out of interest, I did once work out the total cost of my car - purchase, insurance, maintenance, repairs, fuel, tyres, the whole kit and caboodle.  The monthly cost was, let's just say, rather (i.e. very substantially!) less than the cheapest PCP plan I could see advertised :-)

EVbuyer

Petriix said:

There are some heavy discounts on E-Niro lease deals right now: ~ £2k down then £220 per month. You couldn't 'buy' one for anything close to that. There are also some massive discounts on pre-reg MG ZSs if you want to stretch your budget a little and buy new.

Thanks! Presumably those lease deals are 5,000 miles and a 9 month initial rental (deposit), so let's say the initial rental subtracts £3,000 from my £15,000 budget and I'm left with £12,000. Over 3 years, maybe that £12,000 could recover to £15,000 if I invest in equities and the market does ok. Factoring in a higher annual mileage, let's say the monthly payments on the lease are £250 over 3 years, that's £9,000 that I could have invested over that time but is now gone. So at the end of all this I have £15,000 in total.

Now, if instead I buy the used car for £15,000 and trade it in 3 years later for £10,000. Over that 3 years, I've invested the £250/month that I've saved from not having the lease, that gets me about £10,000 (again, assuming an ok market). I have £20,000 in total.

Now, it's slightly more complicated in that an e-Niro will have greater range than a used EV, and so I can do more miles on my cheap overnight home electricity tariff (8p/kWh) rather than the extra charging I'd have to do on expensive rapid chargers (35p/kWh) in the used EV. Let's say the e-Niro would save me £15/month that way, that's £540 over 3 years. Then, let's also say that the used car costs me more in maintenance... new tyres or brake pads or something. Budget £460 for that (to make these nice round numbers!)

So, the additional cost of getting the e-Niro lease over buying a used £15,000 EV is £4,000 over 3 years. Or, about £110/month. For that, I get a nicer, newer car, that is less hassle on longer journeys as I won't have to charge it as often. So the question is whether that additional luxury, niceness, and convenience is worth £110/month to me or not, right?

Ok, I typed out this man maths off the top of my head before work, and before having my morning coffee. So please can someone post now to explain how I've made an obvious error in it!  Also, I'm aware that if I keep the used car longer than 3 years then it provides even more value, this was just to do a cost comparison over the same period.