Buy car with cash Vs lease and invest?

Mutton_Geoff

There are plenty of 3-4-5 year periods in the history of market investment where the growth has been negative. What happens when you drop your £15k investment at the top of the market and 3 years later, it's still only worth £9k?

EVbuyer

Mutton_Geoff said:

There are plenty of 3-4-5 year periods in the history of market investment where the growth has been negative. What happens when you drop your £15k investment at the top of the market and 3 years later, it's still only worth £9k?

Oh, totally. This is an exercise in whether it even theoretically makes sense assuming good market conditions. If it doesn't even make sense in good market conditions, it certainly doesn't in bad conditions.

And of course, knowing that the market is variable again points to the car ownership option making sense as it gives me flexibility. If a lease deal ends in 3 years, it ends in 3 years whatever happens so I will have to at that point find my next initial rental fee (deposit) for the next lease, even if market conditions are bad. Whereas if I own the car, and the market crashes, I can decide to hang onto it for another year or two until it recovers before changing it for something newer.

AdrianC

It really is all about certainty versus risk/opportunity.

Buy a car - you are flexible to change it when you want, you are flexible to cover as many miles as you want, you do not know what it will cost you in total.

Lease a car - you know exactly what the monthly lease costs will be multiplied by the term, you know exactly when it will go back, you know exactly how many miles you can cover without incurring extra cost.

(PCP - like a lease, but with the opportunity to buy, giving a potential upside if the depreciation is less than expected)

Remember - you are financing the entire purchase price of the car, and basically repaying the expected depreciation plus the finance costs. £250 x 36 = £9,000 with nothing to show for it except the memory of having rented somebody else's car for three years.

You walk away at the end of the term, and you need to get straight back on the fixed-term-finance roundabout - or find/borrow the capital to buy a car. That's a good part of the reason why the motor industry is so keen on subsidising new-car finance deals... They know you'll be back for another new car in three years time. For them, the used market is only useful for propping up residual values on the new cars they actually want to sell.

Bluebell1000

If you are going EV, it might also be worth working out if it'd be better value to invest in solar panels - though that's going to be a longer return on investment than the 3 years you're calculating. You won't get much winter charging, but if your mileage is reasonable and you are at home in the day to charge (as we are), then running the car on free electric from about Mar-Oct is possible, depending on size of solar panel system of course. 

DrEskimo

Well I was in exactly this position in Feb2019. Had £15k budget to buy an EV and in the end I went with an outright purchase, but used PCP initially to get further discounts and free servicing to bring the total cost to £14,500.

Lease deals at the time for a 41kWh Zoe were £2,500 initial payment and £250/month for 36months, or the EVEZY model which was £289/month (no initial) and included insurance, maintenance, servicing and even Polar Charging.

My current car has held it's value very well (partly owing to much lower mileage than expected) and since servicing was free for 2 years, my total costs are as follows:

£14,500 purchase price
~£100 in 'fuel' costs to charge (mixture of free and paid public posts)
£500 in insurance (premium is about £250/year)
£40 MOT
£36 wheel alignment

Many of those costs (and additional costs in servicing) would have been applicable on a standard lease.
My car currently will still fetch around £14,000 private, and £13,000 trade, so It has cost me only around £2,000 all in over 24months.

I do invest in global funds too, and I'm currently around 12% up, but even factoring that in I am still massively better off from buying (around £3-4k). Not to mention absolutely no contractual obligations whatsoever (EVEZY for example require you to use an app, have £1,000 excess on the insurance, restrictions on who can be named driver, unable to drive in Europe and have a mandatory dashcam).

So my advice is buy used, but buy at a keen price. It took me the best part of 6-months before I found a battery owned 41kWh Zoe at <£16k (which I subsequently got further discounts on using PCP deals, haggling, etc.).

EVbuyer

DrEskimo said:

Well I was in exactly this position in Feb2019. Had £15k budget to buy an EV and in the end I went with an outright purchase, but used PCP initially to get further discounts and free servicing to bring the total cost to £14,500.

Lease deals at the time for a 41kWh Zoe were £2,500 initial payment and £250/month for 36months, or the EVEZY model which was £289/month (no initial) and included insurance, maintenance, servicing and even Polar Charging.

My current car has held it's value very well (partly owing to much lower mileage than expected) and since servicing was free for 2 years, my total costs are as follows:

£14,500 purchase price
~£100 in 'fuel' costs to charge (mixture of free and paid public posts)
£500 in insurance (premium is about £250/year)
£40 MOT
£36 wheel alignment

Many of those costs (and additional costs in servicing) would have been applicable on a standard lease.
My car currently will still fetch around £14,000 private, and £13,000 trade, so It has cost me only around £2,000 all in over 24months.

I do invest in global funds too, and I'm currently around 12% up, but even factoring that in I am still massively better off from buying (around £3-4k). Not to mention absolutely no contractual obligations whatsoever (EVEZY for example require you to use an app, have £1,000 excess on the insurance, restrictions on who can be named driver, unable to drive in Europe and have a mandatory dashcam).

So my advice is buy used, but buy at a keen price. It took me the best part of 6-months before I found a battery owned 41kWh Zoe at <£16k (which I subsequently got further discounts on using PCP deals, haggling, etc.).

Thanks so much, that's fantastic. As you say, the exact same situation. I think you might have been lucky with a lack of depreciation in that time (though sounds like you also made your own luck by searching around for a deal on your purchase price), but nevertheless I think it is pretty clear to me now that there's no way to honestly tell myself that getting the lease is the smart financial move. It literally comes down to whether the increase cost is worth the extra niceness, range, and warranty of a brand new EV to me, and I don't think it is. New car owning smugness wears off pretty soon, whereas saving well over £100 per month is a gift that keeps giving!

I will look into the PCP thing though. As you and others have said, if it gives you a nice discount and there's no penalty for paying it all off right away then it would be silly not to!

DrEskimo

EVbuyer said:

DrEskimo said:

Well I was in exactly this position in Feb2019. Had £15k budget to buy an EV and in the end I went with an outright purchase, but used PCP initially to get further discounts and free servicing to bring the total cost to £14,500.

Lease deals at the time for a 41kWh Zoe were £2,500 initial payment and £250/month for 36months, or the EVEZY model which was £289/month (no initial) and included insurance, maintenance, servicing and even Polar Charging.

My current car has held it's value very well (partly owing to much lower mileage than expected) and since servicing was free for 2 years, my total costs are as follows:

£14,500 purchase price
~£100 in 'fuel' costs to charge (mixture of free and paid public posts)
£500 in insurance (premium is about £250/year)
£40 MOT
£36 wheel alignment

Many of those costs (and additional costs in servicing) would have been applicable on a standard lease.
My car currently will still fetch around £14,000 private, and £13,000 trade, so It has cost me only around £2,000 all in over 24months.

I do invest in global funds too, and I'm currently around 12% up, but even factoring that in I am still massively better off from buying (around £3-4k). Not to mention absolutely no contractual obligations whatsoever (EVEZY for example require you to use an app, have £1,000 excess on the insurance, restrictions on who can be named driver, unable to drive in Europe and have a mandatory dashcam).

So my advice is buy used, but buy at a keen price. It took me the best part of 6-months before I found a battery owned 41kWh Zoe at <£16k (which I subsequently got further discounts on using PCP deals, haggling, etc.).

Thanks so much, that's fantastic. As you say, the exact same situation. I think you might have been lucky with a lack of depreciation in that time (though sounds like you also made your own luck by searching around for a deal on your purchase price), but nevertheless I think it is pretty clear to me now that there's no way to honestly tell myself that getting the lease is the smart financial move. It literally comes down to whether the increase cost is worth the extra niceness, range, and warranty of a brand new EV to me, and I don't think it is. New car owning smugness wears off pretty soon, whereas saving well over £100 per month is a gift that keeps giving!

I will look into the PCP thing though. As you and others have said, if it gives you a nice discount and there's no penalty for paying it all off right away then it would be silly not to!

Yea I've never quite understood the value of a new car...my car was from a main Renault Dealer and was 2yrs old with just 5,500 miles on the clock. Next to it was a brand new one in the same colour and trim. If you covered the license plate I would not be able to tell the difference between the two.....

Out of interest what EV are you looking at?

AdrianC

DrEskimo said:

Yea I've never quite understood the value of a new car...my car was from a main Renault Dealer and was 2yrs old with just 5,500 miles on the clock. Next to it was a brand new one in the same colour and trim. If you covered the license plate I would not be able to tell the difference between the two.....

The main difference, of course, is being able to pick your colour/trim/spec... and two years of manufacturer warranty.

Whether you think perhaps a quarter to a third off the new price is worth missing out on that is another question, of course.

DrEskimo

AdrianC said:

DrEskimo said:

Yea I've never quite understood the value of a new car...my car was from a main Renault Dealer and was 2yrs old with just 5,500 miles on the clock. Next to it was a brand new one in the same colour and trim. If you covered the license plate I would not be able to tell the difference between the two.....

The main difference, of course, is being able to pick your colour/trim/spec... and two years of manufacturer warranty.

Whether you think perhaps a quarter to a third off the new price is worth missing out on that is another question, of course.

Indeed. In my particular case the car was identical in colour/spec/trim as the new car (think mine had more actually as it had the reversing camera...).

Incidentally my earlier used model came with 4yr warranty from factory, whereas the newer model years only came with 3yrs warranty, so it was ~£4,000 more for an extra year warranty....something I will be extending for another year with Renault in January for £289.....

missile

EVbuyer said:

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+

Very sensible. I too find it so much easier to drive in to my main Audi dealer with my old banger and out in a new car.
I am happy to pay a little extra for that service.