Leasing - pros and cons

disfunktion · 6 Sep 2009 at 17:54

As per titles -

My dad is considering leasing over a 36 month period.

Can anyone advise what to look for - i.e. best place to look for good deals, any clauses etc to be aware of.

He is looking at cars in the VAG range.

Sorry if the above is rather brief - I'm just looking for basic advice, as previously he has always bought cars with cash outright but I have put the above to him as an option.

[TW]Fox · 6 Sep 2009 at 18:16

Generally speaking if its through a business with the relevant tax relief it makes sense, if its a personal lease it almost always costs more than buying the car. It's a long term hire car.

disfunktion · 6 Sep 2009 at 18:38

It will be for personal use. He drives <70 miles per week.

[TW]Fox · 6 Sep 2009 at 18:40

Then anything he buys is going to be low miles when he sells and have a strong residual value which will offset much of the cost of buying it.

iaind · 6 Sep 2009 at 18:45

I cant imagine the cost of a loan, less the resale value will be more expensive than a lease, so I dont really see the point.

disfunktion · 6 Sep 2009 at 18:46

Buying new would mean an outlay of £17k-ish for a decent spec Golf.

Leasing a similar spec would be around £250-300 per month with a limit of 10,000 miles per year. So about £9000-10,000 over a three year period.

Is the car likely to lose that much in value over the three year period, thus justifying the leasing option?

mr tommo · 6 Sep 2009 at 18:46

[TW]Fox;14827432 said:
Generally speaking if its through a business with the relevant tax relief it makes sense, if its a personal lease it almost always costs more than buying the car. It's a long term hire car.

Is that if you were to buy brand new from a showroom?
What are the tax reliefs, do you just need to be registered with the tax office as self employed to get business lease?

disfunktion · 6 Sep 2009 at 18:47

iaind said:
I cant imagine the cost of a loan, less the resale value will be more expensive than a lease, so I dont really see the point.

He's not interested in a loan as such, he wont buy anything on finance.

He can buy the car outright if he wants, but this is just an option to consider.

iaind · 6 Sep 2009 at 18:48

disfunktion said:
Buying new would mean an outlay of £17k-ish for a decent spec Golf.

Leasing a similar spec would be around £250-300 per month with a limit of 10,000 miles per year. So about £9000 over a three year period.

Is the car likely to lose that much in value over the three year period, thus justifying the leasing option?

A decent spec golf is going to still be worth a fair whack in 3 years time.

iaind · 6 Sep 2009 at 18:49

disfunktion said:
He's not interested in a loan as such, he wont buy anything on finance.

He can buy the car outright if he wants, but this is just an option to consider.

If he can buy it outright, why would he even consider leasing it? It will cost him thousands and he'll have nothing to show for it at the end of the term

disfunktion · 6 Sep 2009 at 18:51

iaind said:
If he can buy it outright, why would he even consider leasing it? It will cost him thousands and he'll have nothing to show for it at the end of the term

Because if the leasing period costs the same as what the car would lose in value if bought outright then does it not make sense to lease it?

As I said, its just a option to consider. We dont know much about it, hence why I'm asking for advice on here

miniyazz · 6 Sep 2009 at 18:52

disfunktion said:
He's not interested in a loan as such, he wont buy anything on finance.

He can buy the car outright if he wants, but this is just an option to consider.

I would far rather own something, if I could afford it, than essentially hire something, money each month but nothing to show for it after. But I suppose other concerns like repairs might not be a concern leased?

mr tommo · 6 Sep 2009 at 18:54

miniyazz said:
I would far rather own something, if I could afford it, than essentially hire something, money each month but nothing to show for it after. But I suppose other concerns like repairs might not be a concern leased?

Well no, a brand new car bought with a loan, and a 3 year leased car, will both be under warranty for 3 years.

[TW]Fox · 6 Sep 2009 at 18:58

disfunktion said:
He's not interested in a loan as such, he wont buy anything on finance.

What is the practical difference between doing this and using finance? None really.

He can buy the car outright if he wants, but this is just an option to consider.

Then lets price up buying it new (A stupid thing do especially with something as bland as a Golf but we'll leave that for now).

We'll consider a Golf 2.0 GT TDI 140 (Because the sort of person who only buys new is likley to insist on a diesel despite the very low mileage). Broadspeed.com can supply at 11% below list price which is £20k (My god, 20 grand for a diesel Golf?! Jesus...) taken down to £18k

To work out its predicted residual value, lets look at the used price of a 2006/56 Golf GT TDI 140 with 11k miles on it, his total use over 3 years - it will have a trade book value of circa £10200. This means he could sell it second hand for £11k.

So, the total depreciation over the 3 years would be in the region of £7000. However for those 3 years he won't have the use of his £7000 so there is opportunity cost here, he'll lose what, about 500 quid interest, although I'm assuming he is a 40% taxpayer so that comes down to £300.

So, cost of depreciation + opportunity cost = £7300 to own the Golf for 3 years.

You've just said yourself that leasing will cost £9k-10k.

Therefore, don't bother.

clv101 · 6 Sep 2009 at 19:02

miniyazz said:
I would far rather own something, if I could afford it, than essentially hire something, money each month but nothing to show for it after. But I suppose other concerns like repairs might not be a concern leased?

This logic is flawed. The guy wants a car to drive around in for three years. Does it cost more to buy out right, then sell after three years or to lease for three years. It depends on a large number of factors but a desire to have something to "show for it" shouldn't be one of them.

edit, Fox, he'll lose the interest on the full £18k while it's tied up in a Golf.

[TW]Fox · 6 Sep 2009 at 19:03

clv101 said:
Does it cost more to buy out right, then sell after three years or to lease for three years. It depends on a large number of factors but a desire to have something to "show for it" shouldn't be one of them.

Given that I doubt he's going to give up driving and purchase a bicycle in month 37 I rather think the opportunity to retain a car you've owned since new is a very big advantage rather than a non issue!

disfunktion · 6 Sep 2009 at 19:04

That makes it clearer.

He's never bought new before and he wasnt looking diesels

. Last car was a 97 Polo 1.6GL, which he would still be driving if it wasn't written off last month. He's not one to have things for the sake of showing off.

I knew you'd say something about the Golf, but he wont buy anything other than VW but I'm trying to get him to look at other cars in the VAG range.

[TW]Fox · 6 Sep 2009 at 19:07

disfunktion said:
He's never bought new before and he wasnt looking diesels . Last car was a 97 Polo 1.6GL, which he would still be driving if it wasn't written off last month.

All the more reason to purchase a car himself and keep it. If he was to buy a brand new Golf and keep it for 10 years before throwing it in the dustbin, it would cost him £1800 a year to own. This is exactly half the cost of leasing one, although obviously leasing for 10 years means the car is never more than 3 years old whereas owning means the car increases in age until it is 10 but from what you've said this isn't a concern - buying and keeping would save him £18,000 over a 10 year period - and the likely resale value of the car (Golfs always sell) would probably reimburse any unexpected repair bills he may have to fork out as the car gets older anyway.

He could even sell the car at 5 years old with 20k on it for circa £8.5k (Yes folks thats the value of a 2004 Golf GT TDI 140) and purchase another brand new one - meaning the cost of the 10 years in a Golf never more than 5 years old would actually be just £19000, or £1900 a year.... compared to leasing one.

It's a daft idea.

clv101 · 6 Sep 2009 at 19:08

[TW]Fox;14827716 said:
Given that I doubt he's going to give up driving and purchase a bicycle in month 37 I rather think the opportunity to retain a car you've owned since new is a very big advantage rather than a non issue!

The comparison is over a 36 month period. End off. In the 37th month he makes new arrangements (maybe buying a 3 year old Golf!). No one is talking about giving up a car...

iaind · 6 Sep 2009 at 19:08

Nothing wrong with the Golf at all - just buy a year old one and let someone else pay for the depreciation