Better to Lease than Buy - Check my workings

billy2shots

Usually at this point I would be screaming 'buy' never lease, however everyone's situation is different and I now see leasing has it's place.

I should start by saying I am more than aware that buying a cheap run around and using that until it dies or becomes expensive to maintain is the most frugal way to do things. Lets leave those comments out of it please.


Time to get some meat on the bone.

Sold my car yesterday for £46,000. after 16 months and 5k miles it appreciated by £6,000. I had use of another car for almost a year. I got a very good deal on it originally and used prices have helped see a tidy return.

16 months ago I was looking at going full EV. I backed out and went 370bhp 6 cylinder petrol instead! 
2021 has seen a few more EVs hit the market and I am particularly drawn to the Hyandai Ioniq 5.

My situation is complicated by having the capital to either use upfront or to allow regular payments into my S&S ISA (and the wife's if needed)

The figures

Buying new in the spec I want will see the following costs based on 3 years and 8k miles

£47,000 purchase price
Service £250 (Servicing every 2 years)
VED (Road Tax) £0
Electric based on my current rate plus a 20% increse next contract £1500

Total outlay after 3 years = £48,750 and I own the car,

or -

Adding in the resale value based on 55% value after 3 years (55% of £47k) = £25,850

If sold after 3 years my position will be - £48,750 + £25,850 = - £22,900 and no car to show for it 

£22,900 for 3 years worth of motoring!

The ISA factor

Buying outright would allow me to invest £500 per month into my ISA. Based on a return of 5% over 3 years this could amount to £19,376

This can be taken away from my original cost meaning an overall cost for 3 years motoring = £3,524



Lease option

For the same spec car over 3 years and 8k miles the lease quote is £20,800. Running costs would be the same as above.

Lease £20,800
Service £250 (Servicing every 2 years)
VED (Road Tax) £0
Electric based on my current rate plus a 20% increse next contract £1500

As I would be paying monthly there would be an initial deposit (£2000) plus no £500 to invest in the ISA monthly as this pays the monthly lease fee.

Total outlay after 3 years = £21,550 

However 

I still have the £46,000 9minus £2000 lease deposit) capital from selling my car. That £44,000 can be invested.

£44,000 invested for 3 years @ 5% could = £51,104 

So after 3 years my position could be £51,104 minus £21,550 = +£29,554


Summary after 3 years

Buying = £48,750 out of pocket but owning a car at the end with £19,376 invested  in the ISA

Buying and selling after 3 years = £3,524 out of pocket and no car

Leasing = No car but potentially £29,454 invested in an ISA

My investment of £44,000 would have to lose 60% to be level with buying outright and selling after 3 years!






Variables

Investments might not average 5% over 3 years. Not the end of the world as this money will not necessarily be needed.

Current Electric vehicle prices could tank as technology improves. In 3 years time owning an outdated model might not be worth 55%.

Apart from a mortgage, I have no debt and don't like living that way. Leasing is basically a loan for that period of time.

 No plans to move and my fixed rate mortgage lasts longer than the lease term so no issues with mortgage affordability etc.




Really interested in others calculations given my situation. I can't help feeling I have got my numbers way wrong somewhere or is cash really king?

Nebulous2

My head is spinning with all of that, but I wouldn't add back in the £500 pm cost that I wouldn't be paying for the lease. 

You are either paying for the car from capital, or paying (leasing it) monthly. If you pay it with capital you are losing any value you could make from that capital over the 3 years. Aiming for 5% growth over a 3 year period is a risky strategy. The capital I would be using if I had bought is sitting in premium bonds at a non-guaranteed 0.9% 

Saving the lease fee if I bought would probably go to the same place, though we are both close to our maximum for PBs. However the saving would start small and only build up to a decent sum later in the lease term. 

I think your leasing cost is very high. 

I've just leased a 40kwh Nissan leaf. With 10k miles per year and 9m payments up front my total outlay for the vehicle will be just under £9k. Monthly cost just over £200 including VAT. 

If I bought it it would depreciate by 50% over the 3 years, or £15k on a car which costs over £30k Very straight-forwardly £9k plays £15k for 3 years costs. 

I like the 3 year term as electric vehicles aren't mature technology and could well develop a fair bit over that period, leaving me stranded with old technology. 

Fuel, servicing, insurance etc don't matter for the same car as they are present in both equations. They just unnecessarily clutter up the figures. They would matter if you are comparing two different cars or comparing electric with petrol. 



 

Grumpy_chap

billy2shots said:

Usually at this point I would be screaming 'buy' never lease, however everyone's situation is different and I now see leasing has it's place.

I should start by saying I am more than aware that buying a cheap run around and using that until it dies or becomes expensive to maintain is the most frugal way to do things. Lets leave those comments out of it please.


Time to get some meat on the bone.

Sold my car yesterday for £46,000. after 16 months and 5k miles it appreciated by £6,000. I had use of another car for almost a year. I got a very good deal on it originally and used prices have helped see a tidy return.

16 months ago I was looking at going full EV. I backed out and went 370bhp 6 cylinder petrol instead! 
2021 has seen a few more EVs hit the market and I am particularly drawn to the Hyandai Ioniq 5.

My situation is complicated by having the capital to either use upfront or to allow regular payments into my S&S ISA (and the wife's if needed)

The figures

Buying new in the spec I want will see the following costs based on 3 years and 8k miles

£47,000 purchase price
Service £250 (Servicing every 2 years)
VED (Road Tax) £0
Electric based on my current rate plus a 20% increse next contract £1500

Total outlay after 3 years = £48,750 and I own the car,

or -

Adding in the resale value based on 55% value after 3 years (55% of £47k) = £25,850

If sold after 3 years my position will be - £48,750 + £25,850 = - £22,900 and no car to show for it 

£22,900 for 3 years worth of motoring!

The ISA factor

Buying outright would allow me to invest £500 per month into my ISA. Based on a return of 5% over 3 years this could amount to £19,376

This can be taken away from my original cost meaning an overall cost for 3 years motoring = £3,524



Lease option

For the same spec car over 3 years and 8k miles the lease quote is £20,800. Running costs would be the same as above.

Lease £20,800
Service £250 (Servicing every 2 years)
VED (Road Tax) £0
Electric based on my current rate plus a 20% increse next contract £1500

As I would be paying monthly there would be an initial deposit (£2000) plus no £500 to invest in the ISA monthly as this pays the monthly lease fee.

Total outlay after 3 years = £21,550 

However 

I still have the £46,000 9minus £2000 lease deposit) capital from selling my car. That £44,000 can be invested.

£44,000 invested for 3 years @ 5% could = £51,104 

So after 3 years my position could be £51,104 minus £21,550 = +£29,554


Summary after 3 years

Buying = £48,750 out of pocket but owning a car at the end with £19,376 invested  in the ISA

Buying and selling after 3 years = £3,524 out of pocket and no car

Leasing = No car but potentially £29,454 invested in an ISA

My investment of £44,000 would have to lose 60% to be level with buying outright and selling after 3 years!






Variables

Investments might not average 5% over 3 years. Not the end of the world as this money will not necessarily be needed.

Current Electric vehicle prices could tank as technology improves. In 3 years time owning an outdated model might not be worth 55%.

Apart from a mortgage, I have no debt and don't like living that way. Leasing is basically a loan for that period of time.

 No plans to move and my fixed rate mortgage lasts longer than the lease term so no issues with mortgage affordability etc.




Really interested in others calculations given my situation. I can't help feeling I have got my numbers way wrong somewhere or is cash really king?

Thank you for your post. 
Only yesterday I was ridiculed for mentioning that working out the total costs of buying / having the use of a car was absolutely obscure and required a high level of mental gymnastics that most people really would not be doing.
I was told that, apparently, the only factor is the monthlies, which I absolutely disagree with.

That aside, you seem to have included far too much and massively overly complicated the whole situation by referencing factors that are unchanged and have no bearing on the decision:

• What you sold the old car for - irrelevant
• Cost of electricity - irrelevant (the comparison is only considering one car, not an EV vs ICE assessment)
• Your mortgage - irrelevant
• Service cost - irrelevant
• VED - irrelevant

If there is a reason why these factors do have an influence, then it needs to be explained.  It is certainly not obvious.

I think this would be a lot easier for everyone to understand if the calculations are re-done solely on cost to buy versus cost to lease.  Then, and only then, consider the time-value of money and what else that money could do for you.

Maybe if you drive this down to the real variables, you will find it easier and find more people willing to spend time reviewing the maths.

billy2shots

Grumpy_chap said:

billy2shots said:

Usually at this point I would be screaming 'buy' never lease, however everyone's situation is different and I now see leasing has it's place.

I should start by saying I am more than aware that buying a cheap run around and using that until it dies or becomes expensive to maintain is the most frugal way to do things. Lets leave those comments out of it please.


Time to get some meat on the bone.

Sold my car yesterday for £46,000. after 16 months and 5k miles it appreciated by £6,000. I had use of another car for almost a year. I got a very good deal on it originally and used prices have helped see a tidy return.

16 months ago I was looking at going full EV. I backed out and went 370bhp 6 cylinder petrol instead! 
2021 has seen a few more EVs hit the market and I am particularly drawn to the Hyandai Ioniq 5.

My situation is complicated by having the capital to either use upfront or to allow regular payments into my S&S ISA (and the wife's if needed)

The figures

Buying new in the spec I want will see the following costs based on 3 years and 8k miles

£47,000 purchase price
Service £250 (Servicing every 2 years)
VED (Road Tax) £0
Electric based on my current rate plus a 20% increse next contract £1500

Total outlay after 3 years = £48,750 and I own the car,

or -

Adding in the resale value based on 55% value after 3 years (55% of £47k) = £25,850

If sold after 3 years my position will be - £48,750 + £25,850 = - £22,900 and no car to show for it 

£22,900 for 3 years worth of motoring!

The ISA factor

Buying outright would allow me to invest £500 per month into my ISA. Based on a return of 5% over 3 years this could amount to £19,376

This can be taken away from my original cost meaning an overall cost for 3 years motoring = £3,524



Lease option

For the same spec car over 3 years and 8k miles the lease quote is £20,800. Running costs would be the same as above.

Lease £20,800
Service £250 (Servicing every 2 years)
VED (Road Tax) £0
Electric based on my current rate plus a 20% increse next contract £1500

As I would be paying monthly there would be an initial deposit (£2000) plus no £500 to invest in the ISA monthly as this pays the monthly lease fee.

Total outlay after 3 years = £21,550 

However 

I still have the £46,000 9minus £2000 lease deposit) capital from selling my car. That £44,000 can be invested.

£44,000 invested for 3 years @ 5% could = £51,104 

So after 3 years my position could be £51,104 minus £21,550 = +£29,554


Summary after 3 years

Buying = £48,750 out of pocket but owning a car at the end with £19,376 invested  in the ISA

Buying and selling after 3 years = £3,524 out of pocket and no car

Leasing = No car but potentially £29,454 invested in an ISA

My investment of £44,000 would have to lose 60% to be level with buying outright and selling after 3 years!






Variables

Investments might not average 5% over 3 years. Not the end of the world as this money will not necessarily be needed.

Current Electric vehicle prices could tank as technology improves. In 3 years time owning an outdated model might not be worth 55%.

Apart from a mortgage, I have no debt and don't like living that way. Leasing is basically a loan for that period of time.

 No plans to move and my fixed rate mortgage lasts longer than the lease term so no issues with mortgage affordability etc.




Really interested in others calculations given my situation. I can't help feeling I have got my numbers way wrong somewhere or is cash really king?

Thank you for your post. 
Only yesterday I was ridiculed for mentioning that working out the total costs of buying / having the use of a car was absolutely obscure and required a high level of mental gymnastics that most people really would not be doing.
I was told that, apparently, the only factor is the monthlies, which I absolutely disagree with.

That aside, you seem to have included far too much and massively overly complicated the whole situation by referencing factors that are unchanged and have no bearing on the decision:

• What you sold the old car for - irrelevant
• Cost of electricity - irrelevant (the comparison is only considering one car, not an EV vs ICE assessment)
• Your mortgage - irrelevant
• Service cost - irrelevant
• VED - irrelevant

If there is a reason why these factors do have an influence, then it needs to be explained.  It is certainly not obvious.

I think this would be a lot easier for everyone to understand if the calculations are re-done solely on cost to buy versus cost to lease.  Then, and only then, consider the time-value of money and what else that money could do for you.

Maybe if you drive this down to the real variables, you will find it easier and find more people willing to spend time reviewing the maths.

Thanks for taking the time to reply.

To try and answer some of your points.

The money I received from my sale was to illustrate I have the collateral to invest if I leased. Wholly relevant I believe.

Cost of electricity was mentioned to show you and others I have accounted for the rising cost of energy, again important I believe.

Mortgage point was to stress that leasing won't cause an issue as I don't need to remortgage. Vital information!

The service and tax cost I concede. I have overly complicated that and the electrical cost I suppose because I have a separate argument going on in my head and on paper Infront of me re EV or ICE.


I really do believe this is much more complicated than lease cost Vs future resale value of an owned car. The capital that can be used has to play a big part. 

For people who want it in very simple terms,

If buying, then the resale value of selling after 3 years needs to be 60% . Not going to happen in my opinion.

billy2shots

Nebulous2 said:

My head is spinning with all of that, but I wouldn't add back in the £500 pm cost that I wouldn't be paying for the lease. 

You are either paying for the car from capital, or paying (leasing it) monthly. If you pay it with capital you are losing any value you could make from that capital over the 3 years. Aiming for 5% growth over a 3 year period is a risky strategy. The capital I would be using if I had bought is sitting in premium bonds at a non-guaranteed 0.9% 

Saving the lease fee if I bought would probably go to the same place, though we are both close to our maximum for PBs. However the saving would start small and only build up to a decent sum later in the lease term. 

I think your leasing cost is very high. 

I've just leased a 40kwh Nissan leaf. With 10k miles per year and 9m payments up front my total outlay for the vehicle will be just under £9k. Monthly cost just over £200 including VAT. 

If I bought it it would depreciate by 50% over the 3 years, or £15k on a car which costs over £30k Very straight-forwardly £9k plays £15k for 3 years costs. 

I like the 3 year term as electric vehicles aren't mature technology and could well develop a fair bit over that period, leaving me stranded with old technology. 

Fuel, servicing, insurance etc don't matter for the same car as they are present in both equations. They just unnecessarily clutter up the figures. They would matter if you are comparing two different cars or comparing electric with petrol. 



 

Many thanks for your input.

Again, whilst investment capital isn't guaranteed, I think it does come into play. Especially if there isn't the 'need' to withdraw it if markets are down. 

I could have simplified my op a fair bit but I have scrambled my braincells these last few days and just chucked something down in a post to get feedback.

I don't mean to sound condescending but I don't want to go down the comparing cars route. Apple's with oranges and all that. 

Grumpy_chap

billy2shots said:

Wholly relevant I believe.

important I believe.

Vital information!

The capital that can be used has to play a big part. 

I disagree on the relevance or importance of those points.

You seem to like maths, so maybe a Dacia would be ideal

The whole post is TLDR.  All the waffle could be massively simplified:




I have decided to get a new Hyundai Ioniq 5 (trim choice etc).  I am not considering alternative cars or bangernomics - it is the Hyundai that meets my needs and is also what I want.

I am fortunate enough to have the cash to buy outright if I choose; no other debts to be paid off in-lieu.

I normally swap cars after a relatively short period - I am very unlikely to keep the car until it goes to the scrap yard.

I am assessing the choice between cash purchase or lease, and the figures are as follows:

XXXX

I am also aware that if I tie up the capital then I lose investment opportunity, which I have worked out as follows:

YYYY

So, the summary as I see it is:

ZZZZ

Can anyone assist with the numbers - is my assessment correct, or have I missed anything?




Still quite a long post but far shorter.  So what whether you sold a petrol ABC or robbed a bank(*) to get the cash to pay for the Hyundai? 
(*)robbing the bank is very widely frowned upon and there are people that would care, but it won't change the calculation in terms of acquiring the new car, except you may not have the time to yourself to use the car.

That simpler approach may well solicit more helpful reviews. 

You'll probably get suggestions about considering PCP and taking any incentives.  They are options you can assess or ignore as you choose, but PCP with incentives and cleared quickly may reduced the "cash price" and / or zero percent interest eliminate the need to tie up the capital.  I have no idea what offers are currently available for the car in question.

OR, keep talking about the mortgage, selling the petrol-head car for a profit, cost of electricity, VED, service costs and leave readers confused.

Focused questions are far easier to answer.

Nebulous2

billy2shots said:

Nebulous2 said:

My head is spinning with all of that, but I wouldn't add back in the £500 pm cost that I wouldn't be paying for the lease. 

You are either paying for the car from capital, or paying (leasing it) monthly. If you pay it with capital you are losing any value you could make from that capital over the 3 years. Aiming for 5% growth over a 3 year period is a risky strategy. The capital I would be using if I had bought is sitting in premium bonds at a non-guaranteed 0.9% 

Saving the lease fee if I bought would probably go to the same place, though we are both close to our maximum for PBs. However the saving would start small and only build up to a decent sum later in the lease term. 

I think your leasing cost is very high. 

I've just leased a 40kwh Nissan leaf. With 10k miles per year and 9m payments up front my total outlay for the vehicle will be just under £9k. Monthly cost just over £200 including VAT. 

If I bought it it would depreciate by 50% over the 3 years, or £15k on a car which costs over £30k Very straight-forwardly £9k plays £15k for 3 years costs. 

I like the 3 year term as electric vehicles aren't mature technology and could well develop a fair bit over that period, leaving me stranded with old technology. 

Fuel, servicing, insurance etc don't matter for the same car as they are present in both equations. They just unnecessarily clutter up the figures. They would matter if you are comparing two different cars or comparing electric with petrol. 



 

Many thanks for your input.

Again, whilst investment capital isn't guaranteed, I think it does come into play. Especially if there isn't the 'need' to withdraw it if markets are down. 

I could have simplified my op a fair bit but I have scrambled my braincells these last few days and just chucked something down in a post to get feedback.

I don't mean to sound condescending but I don't want to go down the comparing cars route. Apple's with oranges and all that. 

I'm not asking you to compare cars. I'm pointing out that fuel, VED, servicing etc aren't needed in your calculations if you aren't comparing cars. They will be the same on both sides of the equation and will cancel each other out.  

If you want to invest your capital and that is important to you, then it swings it in favour of the lease.  The most important thing for investments is time in the market.  Keeping the cash and putting it in the market immediately will have the best chance of better returns. 

Your equation looks like this.

Lease 

Get a lease with a £2k deposit, leaving £44,000.  Invest that for 3+ years. That becomes £51,104. 
Pay the lease costs from income. £20,800.   

The lease has cost you £20,800 but you have gained £7,104 on your capital that you didn't spend making a net cost of £13,696. 

You have £51k left. 

Purchase

Spend your £46k on the car. 

Invest the money you would have spent on lease payments from your income.  (About £507 per month?) 

That comes to £18759 - interest on that at  5% brings it to roughly £20,200. 

Sell the car for £25,850. 

You have £25,850 left plus £20,200 = £46,050.   

Your purchase has left you with £5k less than the lease, taking the same starting capital sum and payments from income into account. There is also a risk (high in my view) that you wont achieve 55% of purchase price after 3 years. 

billy2shots

Grumpy_chap said:

billy2shots said:

Wholly relevant I believe.

important I believe.

Vital information!

The capital that can be used has to play a big part. 

I disagree on the relevance or importance of those points.

You seem to like maths, so maybe a Dacia would be ideal

The whole post is TLDR.  All the waffle could be massively simplified:




I have decided to get a new Hyundai Ioniq 5 (trim choice etc).  I am not considering alternative cars or bangernomics - it is the Hyundai that meets my needs and is also what I want.

I am fortunate enough to have the cash to buy outright if I choose; no other debts to be paid off in-lieu.

I normally swap cars after a relatively short period - I am very unlikely to keep the car until it goes to the scrap yard.

I am assessing the choice between cash purchase or lease, and the figures are as follows:

XXXX

I am also aware that if I tie up the capital then I lose investment opportunity, which I have worked out as follows:

YYYY

So, the summary as I see it is:

ZZZZ

Can anyone assist with the numbers - is my assessment correct, or have I missed anything?




Still quite a long post but far shorter.  So what whether you sold a petrol ABC or robbed a bank(*) to get the cash to pay for the Hyundai? 
(*)robbing the bank is very widely frowned upon and there are people that would care, but it won't change the calculation in terms of acquiring the new car, except you may not have the time to yourself to use the car.

That simpler approach may well solicit more helpful reviews. 

You'll probably get suggestions about considering PCP and taking any incentives.  They are options you can assess or ignore as you choose, but PCP with incentives and cleared quickly may reduced the "cash price" and / or zero percent interest eliminate the need to tie up the capital.  I have no idea what offers are currently available for the car in question.

OR, keep talking about the mortgage, selling the petrol-head car for a profit, cost of electricity, VED, service costs and leave readers confused.

Focused questions are far easier to answer.

Wow, so much effort to bring precisely nothing to the the topic. 

I coulda, woulda, shoulda are things to bear in mind if you provide me with a time machine.

Grumpy_chap

Having eventually cut through the OP's posts, I have used an online calculator:
https://www.thecalculatorsite.com/finance/calculators/daily-compound-interest.php

This allows the following comparisons between lease and purchase.  It is actually made rather simpler by the OP wanting a newly launched model so there is little by way of discount or finance incentive (based upon a cursory look at the manufacturer's website though some kind of deal may be available).

Consider the two routes to vehicle use over three years as consuming the full capital £47k plus the monthly £537 as that seems to be the assumption the OP has taken.

Lease:
Deposit = £2k
35 monthly payment £537 = £18.8k
Total lease cost £20.8k
Risks = excess mileage charges, damage repair (e.g. stone chips, scuffed alloys)

Investment £47k - £2k deposit = £45k
Nil monthly investment
3 years at 2% annual interest rate
Investment earnings = £2.8k

Total Cost = £20.8k (lease) less £2.8k (interest) = £18k to have the use of the car for 3 years, 24k miles. 
No asset in the car but £47.8k in the bank at the end of the term.

Purchase:
Cost to buy £47k

Investment NIL capital
£537 / month investment
3 years at 2% annual interest rate
Investment deposited over 3 years = £18.8k
Investment earnings = £600

Balance in the bank at the end of three years £19.4k
PLUS the residual value of the car.

To break even with lease, the residual value of the car needs to be £47.8k (lease bank balance) less £19.4k (buy bank balance) = £28.4k OR 60% of the new car value.

Risks (opportunity?) = residual value lower (higher) than £28.4k. 
No need to worry about excess mileage or damage (stone chips, scuffed alloys), but these would impact the residual value.

Decision:
If the OP thinks the car will be worth more than £60% of new after three years (£28.4k), then buy
Else lease.

Hope that helps.

ComicGeek

Or a third option and see if you can negotiate a PCP deal for the same/very near to the lease deal - I was able to do that for my last car, and at 0% finance.

Then you can see whether there's any residual value in the car at the end of the term, over and above the guaranteed value - I've been able to get an additional £8k for mine, that I wouldn't have been able get if I took the lease option.

Grumpy_chap

billy2shots said:

Wow, so much effort to bring precisely nothing to the the topic. 

I coulda, woulda, shoulda are things to bear in mind if you provide me with a time machine.

Sorry I was not of enough help.
Your posts were truly difficult to follow and dissect, but I tried my best to cut through to really understand.
I had understood you weren't willing to consider alternative vehicles, but are you now adding the option of a DeLorean into the mix?