Car leasing (Personal Contract Hire PCH) - what you need to know - Top 10s
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Date: 2022-04-11
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Comments and reviews: 10
Haotian
Long comment, but bear with me here,
Some people are saying leasing is bad because it is basically paying for the first couple years of depreciation of a car and not owning it in the end, it is cheaper to just buy a used car.
Non-car people should really stop being a cheap and recognize the intrinsic value of changing a new car every two or three years.
First off, it reinforces a good image, say if you do business with some wealthy client, they will probably immediately look down on you and doubt your success and capabilities if you show up with a 10 year old Toyota.
Secondly, new cars are better equipped with new safety tech and are generally more reliable, and with full factory warranty, you are not likely to have to pay any maintenance costs.
Thirdly, for people like me, who would likes cool new cars, driving a new car simply makes me happier.
By keeping an old car, one spontaneously foregoes the above.
Moreover, leasing a car is likely to be cheaper for many people than financing the car, or even straight up buying it.
Primarily, monthly cost for leasing is almost always less than the monthly financing payment, and leasing only asks you to pay for the depreciation amount, not the full car's sticker price.
Second off, you get a tax write off as the monthly payment can be claimed as expense easily, if you are in the top tax bracket like me, this effectively cuts off almost 1/3 of that monthly payment. And you pay less vehicle tax, much less.
Lastly, this one is mostly against straight up buying a car, money has time value, the more you can delay the payment, the less the payment is relative to you. The risk free rate (the rate at which your investment will grow without nearly any risk at all) now in the us is about 3%, my personal portfolio did about 11% last year.
In my case, I-ll make a simple model, let-s say that I used $100 to buy a car in cash 3 years ago, I wouldn-t have any of that $100 right now, but if I leased that car, and I pay $2 a month and have a $10 down payment and put all available money in investment at all time (total payment 2-36+10=82, 82% of the full car's price, way more than in real life, -65% ish irl, I would actually still have slightly more than $40 at hand after the lease is over if I maintain my annual 11% (0. 9% monthly) and balance is calculated monthly, (do remember that interest in real life is calculated daily, and in that I would have even more interest money, but this is a simple model, the car will likely depreciate about 60%-70% in three years. If I bought the car, I will have to sell the car to get that money back, it-s a whole lot of hassle and I-ll probably have to sell it at a lower price to sell it quick, remember money has time value so I need that cash quick. That makes buying the car a loss for me.
Some might say, -well I don-t sell the car I don-t see the problem here-, but the car you have worths less than the cash I have, and my cash will only grow in value as I invest, your car on the other hand will depreciate, albeit slowly after 3 years, but depreciates nonetheless. Plus by driving an old car, you lost the intrinsic value of a new car as I mentioned in the beginning.
reply
Long comment, but bear with me here,
Some people are saying leasing is bad because it is basically paying for the first couple years of depreciation of a car and not owning it in the end, it is cheaper to just buy a used car.
Non-car people should really stop being a cheap and recognize the intrinsic value of changing a new car every two or three years.
First off, it reinforces a good image, say if you do business with some wealthy client, they will probably immediately look down on you and doubt your success and capabilities if you show up with a 10 year old Toyota.
Secondly, new cars are better equipped with new safety tech and are generally more reliable, and with full factory warranty, you are not likely to have to pay any maintenance costs.
Thirdly, for people like me, who would likes cool new cars, driving a new car simply makes me happier.
By keeping an old car, one spontaneously foregoes the above.
Moreover, leasing a car is likely to be cheaper for many people than financing the car, or even straight up buying it.
Primarily, monthly cost for leasing is almost always less than the monthly financing payment, and leasing only asks you to pay for the depreciation amount, not the full car's sticker price.
Second off, you get a tax write off as the monthly payment can be claimed as expense easily, if you are in the top tax bracket like me, this effectively cuts off almost 1/3 of that monthly payment. And you pay less vehicle tax, much less.
Lastly, this one is mostly against straight up buying a car, money has time value, the more you can delay the payment, the less the payment is relative to you. The risk free rate (the rate at which your investment will grow without nearly any risk at all) now in the us is about 3%, my personal portfolio did about 11% last year.
In my case, I-ll make a simple model, let-s say that I used $100 to buy a car in cash 3 years ago, I wouldn-t have any of that $100 right now, but if I leased that car, and I pay $2 a month and have a $10 down payment and put all available money in investment at all time (total payment 2-36+10=82, 82% of the full car's price, way more than in real life, -65% ish irl, I would actually still have slightly more than $40 at hand after the lease is over if I maintain my annual 11% (0. 9% monthly) and balance is calculated monthly, (do remember that interest in real life is calculated daily, and in that I would have even more interest money, but this is a simple model, the car will likely depreciate about 60%-70% in three years. If I bought the car, I will have to sell the car to get that money back, it-s a whole lot of hassle and I-ll probably have to sell it at a lower price to sell it quick, remember money has time value so I need that cash quick. That makes buying the car a loss for me.
Some might say, -well I don-t sell the car I don-t see the problem here-, but the car you have worths less than the cash I have, and my cash will only grow in value as I invest, your car on the other hand will depreciate, albeit slowly after 3 years, but depreciates nonetheless. Plus by driving an old car, you lost the intrinsic value of a new car as I mentioned in the beginning.
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willyumification
Fundamentally this is false info, some finance houses will offer leases on used cars up to a year old but a new one would generally work out cheaper. Advantages of the lease is you don-t own it and have a fixed cost knowing your budget. But if you are involved in and accident is very hard to get out of a lease especially in a total loss situation I would always recommend taking a assets protection insurance just in case! And you can terminate a lease early but at a cost in most situations! Do not listen to this garbage fluff go and speak to highly qualified business managers at the dealership, they have to talk you through it and give you the full ins and outs! One last thing a lease is effected by VaT so if the government decides to increase VaT you will end up with that bill as every payment is plus VaT currently 20% but remember when it was less it may increase any time in the budget for the year.
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Fundamentally this is false info, some finance houses will offer leases on used cars up to a year old but a new one would generally work out cheaper. Advantages of the lease is you don-t own it and have a fixed cost knowing your budget. But if you are involved in and accident is very hard to get out of a lease especially in a total loss situation I would always recommend taking a assets protection insurance just in case! And you can terminate a lease early but at a cost in most situations! Do not listen to this garbage fluff go and speak to highly qualified business managers at the dealership, they have to talk you through it and give you the full ins and outs! One last thing a lease is effected by VaT so if the government decides to increase VaT you will end up with that bill as every payment is plus VaT currently 20% but remember when it was less it may increase any time in the budget for the year.
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Raja
i work for a leasing company, no one and i mean no one including the owner of the company leases. i ask them all why because we lease out to people everyday. they say they dont want a monthly bill. i know there is more to the story then just that. i simply dont lease because my 99 camry does the same job of taking me from point a to point b. i could careless about the features. comes down to if you can afford it go for it. id rather not pay for something till the end of time just like the new phone lease deals that are out right now, not to mentin apple getting caught for slowing down their old phones. its all part of a plan to make money. you cant outsmart the system.
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i work for a leasing company, no one and i mean no one including the owner of the company leases. i ask them all why because we lease out to people everyday. they say they dont want a monthly bill. i know there is more to the story then just that. i simply dont lease because my 99 camry does the same job of taking me from point a to point b. i could careless about the features. comes down to if you can afford it go for it. id rather not pay for something till the end of time just like the new phone lease deals that are out right now, not to mentin apple getting caught for slowing down their old phones. its all part of a plan to make money. you cant outsmart the system.
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James
Paying for a car in the first 3 years is THE most expensive period to own a car, leasing is just paying depreciation. A new BMW 3 series msport 320D with say 14k mileage allowance a year costs around 500 per month plus a deposit so overall around 20k for 3 years ownership. You'll find yourself a 3 year old car with 30k miles on it for 20k or less, a 5 year old with 40K miles for 12k. It's then your car for the next 5 or 6 years and a 9 year old 3 series will still make 5 to 7k! Put the money away in a pot like I do and upgrade every 3 to 4 years. Leasing is just another way for people to buy what they can't be bothered to save up for!
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Paying for a car in the first 3 years is THE most expensive period to own a car, leasing is just paying depreciation. A new BMW 3 series msport 320D with say 14k mileage allowance a year costs around 500 per month plus a deposit so overall around 20k for 3 years ownership. You'll find yourself a 3 year old car with 30k miles on it for 20k or less, a 5 year old with 40K miles for 12k. It's then your car for the next 5 or 6 years and a 9 year old 3 series will still make 5 to 7k! Put the money away in a pot like I do and upgrade every 3 to 4 years. Leasing is just another way for people to buy what they can't be bothered to save up for!
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Ryan
Buying or leasing is always a gamble. you really have to go through these lease agreements with a fine tooth combe. the garages win every time. they love it when a young person walks in and gets their new fiesta or fiat 500 on pcp and the commission gets the better of the sales men. Try buying a car with cash and there not interested. The garages obviously see more profit leasing these cars out. Cash is king buy a car you can afford and you wont have any problems
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Buying or leasing is always a gamble. you really have to go through these lease agreements with a fine tooth combe. the garages win every time. they love it when a young person walks in and gets their new fiesta or fiat 500 on pcp and the commission gets the better of the sales men. Try buying a car with cash and there not interested. The garages obviously see more profit leasing these cars out. Cash is king buy a car you can afford and you wont have any problems
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Danny
You can end the agreement early. Request a settlement figure and normally its around 50% of the outstanding balance. Also you often do get the option to purchase the car at the end of the agreement. But normally this is not cost effective and you can often find the same car (Age and mileage) cheaper at a dealer. But why would you want to buy it when a new one would cost less monthly and you would just suffer more depreciation.
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You can end the agreement early. Request a settlement figure and normally its around 50% of the outstanding balance. Also you often do get the option to purchase the car at the end of the agreement. But normally this is not cost effective and you can often find the same car (Age and mileage) cheaper at a dealer. But why would you want to buy it when a new one would cost less monthly and you would just suffer more depreciation.
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KingSadim
Leasing is for you if you want to replace your cars every 2-3 years, finance or cash is better if you intend to keep the car for 5 years or longer. Personally I would never lease because it would always feel like the car is not mine, plus the limits on mileage and damage make it too constricting. Totally understand why some people lease though, if you can afford it and you always want a newish car then why not.
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Leasing is for you if you want to replace your cars every 2-3 years, finance or cash is better if you intend to keep the car for 5 years or longer. Personally I would never lease because it would always feel like the car is not mine, plus the limits on mileage and damage make it too constricting. Totally understand why some people lease though, if you can afford it and you always want a newish car then why not.
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Lt.
Don't know about Great Britain, but in the Netherlands the lease gets registered as a loan and has a great effect on the amount of money you can further loan. Now you can only get a mortgage minus 4 times the value of the car. The factor 4 is some sort of penalty for having a private lease car. Ultimately it comes down to whether you want to drive a new car or buy a house. I'd know what I'd rather have.
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Don't know about Great Britain, but in the Netherlands the lease gets registered as a loan and has a great effect on the amount of money you can further loan. Now you can only get a mortgage minus 4 times the value of the car. The factor 4 is some sort of penalty for having a private lease car. Ultimately it comes down to whether you want to drive a new car or buy a house. I'd know what I'd rather have.
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Batman's
I own a 13 year old car and i recently worked out the difference in cost as to leasing through a work scheme that provides insurance aswell as maintenance the reality of my scenario is that i would be paying an extra 1500 over the three years to have a 17 plate spanker but i still won't go ahead because anything can happen tomorrow let alone three years financially so im just going to play it safe.
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I own a 13 year old car and i recently worked out the difference in cost as to leasing through a work scheme that provides insurance aswell as maintenance the reality of my scenario is that i would be paying an extra 1500 over the three years to have a 17 plate spanker but i still won't go ahead because anything can happen tomorrow let alone three years financially so im just going to play it safe.
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Bestedd
Borrow money from bank to buy the car with. That's the best repayment plan you can get. Best of both worlds simple. But I agree with the outlook that your car shouldn't cost you over 10% of your monthly income. Also the bank will love you offering a better rate next time. As you have proved that you can manage debt and risk like a boss. Financial literacy at its finest. Just don't slip up
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Borrow money from bank to buy the car with. That's the best repayment plan you can get. Best of both worlds simple. But I agree with the outlook that your car shouldn't cost you over 10% of your monthly income. Also the bank will love you offering a better rate next time. As you have proved that you can manage debt and risk like a boss. Financial literacy at its finest. Just don't slip up
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