Leasing V Outright purchase

[bpsorrel]

I have always been against credit, since I was young. I don't even have a mortgage and have never bought a car on HP, lease or whatever. Cash only has been my motto for years.

But seeing all these new, excellent MBs around on lease at prices I wouldn't spend outright (let alone the huge depreciation loss) makes me wonder what I'm missing out on!! After all, the monthly amounts are not that high, even on the high spec models.

On the other hand has that helped dilute the "prestige" of a Mercedes somewhat?

What's the general view here between credit and purchase and the effect easy monthly payments has had on the brand?

 

[jaymanek]

Im like you, ive never gone for credit at all but some of the deals out there just beggar belief.

I always wonder what the catch is, some of these lease deals must bite you at the end or something.
The only thing that puts me off with a lease car is that id always be worried about scratching it or doing excess miles etc and that may hamper the enjoyability..
Also it would never really feel like my car, id feel as if id rented it...

 

[spinaltap]

Over 30 years I bought my car, took out a loan for the full amount required, paid off the loan, and started again - with all the typical problems associated with trading-in.

Only in recent years have I realised that this approach is a mug's game.

Now, I insist on paying minimal deposit over the longest term possible - knowing that I can walk-out on the deal if economic circumstances dictated without having to pay-off the balance of the loan. Plus, whatever the length of the Agility agreement, I can start-over after just 2 years. Then there's the very low interest rate compared to money from the bank.

The added benefit is that I can secure a far more expensive car on Agility than I could if financing from the bank.

 

[st13phil]

On the other hand has that helped dilute the "prestige" of a Mercedes somewhat?

What's the general view here between credit and purchase and the effect easy monthly payments has had on the brand?

Exceptional circumstances notwithstanding, the reality is that as a private individual, unless you are prepared to walk away after you've reached the 50% point but before the finance agreement is paid off then you will be paying for the privilege of using finance. Whether or not you gain "value" from the finance on-cost is a purely personal decision and is also dependent upon personal circumstances. For example, if you can get a better return on your cash than the charges for finance then it's probably a no-brainer.

Has the availablity of finance packages diluted the brand? If you place a value on exclusivity then in some respects it probably has. The flip side is that it also enables people who really do value the brand to buy into it earlier than they may otherwise have managed.

 

[@MARK]

Over 30 years I bought my car, took out a loan for the full amount required, paid off the loan, and started again - with all the typical problems associated with trading-in.

Only in recent years have I realised that this approach is a mug's game.

Now, I insist on paying minimal deposit over the longest term possible - knowing that I can walk-out on the deal if economic circumstances dictated without having to pay-off the balance of the loan. Plus, whatever the length of the Agility agreement, I can start-over after just 2 years. Then there's the very low interest rate compared to money from the bank.

The added benefit is that I can secure a far more expensive car on Agility than I could if financing from the bank.

I kind of share this approach.

I do a lot of miles in my car, many on business so I need something reliable.

Over the years I have worked my way up from a 10 year old Fiesta 1.1 to something a little more prestige.

But to me, I view my car as a monthly payment which I budget for hence having no problems using loans to pay.

But this time is different.

My plan was to take another loan where at the end, I owed nothing using my current car (which is still worth decent money and is mine outright) as a deposit.

Chatting with the finance guy at the dealer however what we have ended up doing is buying the car via a lease with zero deposit and then having the dealer write me a cheque for the full value of my current car.

So I taking all that equity I have built up out of my cars (which is well into five figures) and putting it in the bank today yet after doing this, my monthly payment is still around the same as I have always paid.

You could argue that I am now renting cars rather than buying them but when you are changing cars every few years anyway, what's the difference? Plus with the way the market is now, if there is any equity in the car when I come to change, I can use that to reduce the cost of the next one. If however the market has crashed and the car is worthless, well it's just not my problem and I can walk away.

 

[davidjpowell]

I have in the past seen a car as a payment, and taken a view that I have only ever lost money owning cars. If I can keep that loss to a known level I have been happy.

I believe there is an adage, if it appreciates buy it, if it depreciates lease it.

I have now switched and own both of our cars (relative low values) outright. In this economic climate it suits me, although I am not enjoying the owning experience much.

 

[bpsorrel]

Also it would never really feel like my car, id feel as if id rented it...

Exactly my thoughts! I love the feeling of owning my cars outright. No one can take them away or tell me how to use them etc. Can't beat it in my opinion! Can't wait to feel the joy of owning a "you-know-what" Jay!

 

[gIzzE]

It depends on the car.

You have to sit down and really work out which is best for the given car and your circumstance. Many, or most of us never really do anything other than rent a car, however we pay for it, unless you drive your car until it is scrap all you are doing is using it and covering the depreciation until you move it on. So how you want to fund that is irrelevant.

Problem we have at the moment is the discounts that the manufacturers are throwing at new cars, some of them are bordering on absurd, however us guys on the street can't walk in and get that amount of discount, and Mercedes can't be seen to be giving that amount of discount either. A customer who has just paid £40,000 for his car doesn't want to hear that others have paid less than £30,000 for the same thing, and even worse, what about the guy who is trading in his car? Last thing he needs to hear is "I know we said you would only loose 25% over a year but new cars can be had for less now so we will only give you 50%.'

So they do it through contract hire firms, they actually contract hire themselves at much lower rates than you can buy over 3 years on a PCP, but the real deals are the ones done through brokers.

I was looking at a new C250cdi sport estate - Edition 125 and after discount and with a £4000 deposit it was coming out at £540 a month over 3 years. That was with a balloon of £13000.

If I were to pay cash, it would still cost me £444 a month over 3 years and that is with me gambling that it would be worth £15k as a trade in, which I am not sure it would be, not when you have deals like this about.....

However, I can hire it for £1800 deposit and £302 a month including vat.

Mercedes-Benz C Class contract hire | £252.00 per month | EGON LIMITED | Ref: 7e63368251


So why would I even consider buying that car??


Loads of guys are buying the 730d sport at the moment, BMW are doing it for £2400 deposit and £480 a month over 36 months. That is a £66k car, and if you bought it it would cost you £1100 a month after a £10,000 deposit and you would still owe £22,000 after 36 months if you wanted to keep it.

Then you get the cars like a Toyota Aygo, bought mine for £9000 new and sold it 18 months later for £7800. Contract hire on that was £160 a month, worth buying it.

 

[gIzzE]

And to actually answer the question.....

Yeah, the way cars are funded these days, and more to the point the way most seem completely blasé about credit, has meant that the perceived value of brands like Mercedes have been devalued.

They used to be an aspirational product, now they are attainable by just about everyone.

I guess the AMG range is the thing to aspire to these days?

Someone said to me a couple of years ago 'Ford, and many others, are a finance house that uses its car range to sell its finance product, if getting finance vanishes from this planet we will see the end of people like Ford.'

 

[bpsorrel]

Exactly right. When I worked for a Ford dealer, we made more money on Ford Credit deals than the actual vehicle! Funny world we live in!

 

[Deleted member 37751]

Cash only has been my motto for years.

Me & you both.

I suppose it's all about perception aswell, a few of my friends have £30k-50k motors and yet they have never got a pot to p1ss in cash-wise; I've known some of them try and get a round in using a credit card, yet on the outside they look to be doing well for themselves.

I was brought up to, mortgage aside, pay for everything cash which I still do and maybe that might seem strange in this 'credit hungry world' but it's worked for me up to press.

 

[bpsorrel]

Agreed! Maybe I just don't like anyone having call on my cash even before I've earned it!

I guess my parents were the same, but I did learn a lesson the hard way when I was about 20 and I leapt into the world of credit (the only time) and ran up a HUGE credit card bill that I was no way able to pay off. My Dad paid it for me eventually, but I realised then that I have to live within my means and I've done a fairly good job of doing that ever since!

 

[C240Sport97]

a few of my friends have £30k-50k motors and yet they have never got a pot to p1ss in cash-wise; I've known some of them try and get a round in using a credit card, yet on the outside they look to be doing well for themselves.

the consumer boom .. why the country is broke.

too many people living beyond their means for too long.

 

[Dryce]

What's the general view here between credit and purchase and the effect easy monthly payments has had on the brand?

As long as people understand what they are doing then there isn't a problem.

But the underlying difference is that on a 3 year lease you get a car for three years and are likely as not left with nothing.

Chances are you will start a new lease at the end of the 3 years.

And that's the main point. You're basically covering the first three years of depreciation on successive cars.

It's not a bad way to have a new car every three years if that's what you want.

OTOH a lot of people do seem to go into these deals not realising what the total costs actually are. They focus on the monthly and simply whether or not they can afford it.

A neighbour came round quite excited about a no deposit deal on W204 at £499/month. He felt rather less excited when I pointed out that in 3 years he'd have spent £18000 and that if he looked at the current prices of AU cars that it was clear his final payment would be more than the car was worth (regardless of the salesman's inference that the car might be worth more).

We 'reverse finance' our cars (it's called saving up for a 'new' car) and buy at a year old and keep for at least 5 years. It suits us. My wife's R170 worked out at £2600 a year in depreciation. That's £217 per month.

 

[st13phil]

OTOH a lot of people do seem to go into these deals not realising what the total costs actually are. They focus on the monthly and simply whether or not they can afford it.

...and that is why many car salesman's first question is, "So, what sort of monthly figure do you have in mind?". They then tailor the finance (wanted or not) in such a way as to demonstrate how "affordable" what they're trying to sell is.

 

[bpsorrel]

Couple of years back MB Watford tried the same thing, even though I'd already said "no finance thanks". Came up with some very enticing monthly deals and really couldn't understand me not biting their hands off!

 

[Rory]

A neighbour came round quite excited about a no deposit deal on W204 at £499/month. He felt rather less excited when I pointed out that in 3 years he'd have spent £18000 and that if he looked at the current prices of AU cars that it was clear his final payment would be more than the car was worth (regardless of the salesman's inference that the car might be worth more).

I really could do with changing mine, but I looked at some figures recently and started to feel a bit sick at £500/mth and the awful GFVs - OK, OK, I know if you want to buy a new car it's going to cost a lot of money one way or the other but you can do a bit of "man-maths" if you buy cash.

Seeing the cold hard monthly figures is sobering. Not sure I could bring myself to knowingly hose £500/mth on a car. Far better to do it unknowingly!

 

[Red C220]

GizzE has given the most complete answer so far.

I've bought cars in every way possible - HP, PCP, Contract Hire and buying outright.

Somethimes the vehicle and deal will determine the best way you should finance a car (finance in this instance includes buying outright cash).

Some run out models are so heavily discounted the a contract hire deal can actually work out less over the term of the deal than the depreciation of the vehicle itself - I see that as genuine interest free credit - win win.

If you're going to buy a top spec model and load it with options, forget contract hire - you should be buying outright or on a PCP deal that gives a residual value for all the goodies you've added.

Another consideration is how long you intend to keep the vehicle. If you're a frequent changer, then sometime a package deal can be more economical.

Are you a high mileage driver? If you are buying outright is generally more sensible.

Contract hire is perfect if you do 12 miles a year (or less) want a new car every 24 or 36 months and aren't going to rifle the options list.

I don't have a problem with finanace or hire or renting, what I find difficult to compute is making car payments that are greater than my mortgage payments (currently a tiny £215 a month).

 

[Dieselman]

I don't have a problem with finanace or hire or renting, what I find difficult to compute is making car payments that are greater than my mortgage payments (currently a tiny £215 a month).

Don't worry, when the interest rate rises that will deal with that.

 

[@MARK]

...and that is why many car salesman's first question is, "So, what sort of monthly figure do you have in mind?". They then tailor the finance (wanted or not) in such a way as to demonstrate how "affordable" what they're trying to sell is.

That is probably why I threw the salesperson when I first say down with him because that was exactly my statement to him.

Here is my monthly number now how do we get to it.

I didn't care about the cash price of the car or part ex values etc. My only concern was the monthly number.

So the deal I ended up with was actually much better than I expected and they actually managed to beat the brokers on both the cash price AND the lease numbers so win win in my book.

But it's the same when it comes to part ex.

People get precious about the value of the car they are trading when in reality it is the "cost to change" that matters. Inflate the PX price or discount the new car. It's the same difference.

And as others have said, the dealer gets cash for selling the car, commission on the finance and most importantly a HUGE bonus for selling the allocated volume in any given month. On the 29th of any month, if a dealer hasn't hit his volume number you can pretty much name your deal.