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OK first some background, drink and a bar! thats about it.

Topic - Leasing vs Purchasing of cars
So what i can't understand is why people tend to 'want' to lease rather than buy their cars outright.
My thought was its because people can get a car above what they could normally afford by doing the type of finance (given you are paying back only the depreciation element only), but I'm drunkenly told thats not so. Hmmm, not convinced - but lets say it is (even though I'm 100% sure it's not!)

So here's the confusion part, lets not worry about the reason right now, but look at the cold facts.
The car costs the same regardless of what method is used to pay for it. OK discounts do come into play, but the difference in most cases won't be more that 1 or 2 % and you can get just about the same regardless of the method used will a little haggling.

So, the car regardless of method will be worth the same at the end of your ownership i think thats a given by everyone.
Therefore basic math says take away the residue value from the principle and you are left with a number. Lets call that number the "true cost" or "disagreement".

So the true cost is the same for both a full purchase and a lease, but the lease company are not doing this exercise for free or the love of god. The lease company will be financing the leased car and the true cost is subject to bank interest rates, plus they need to cover their costs and their profits in that number too. So how on earth can a lease be cheaper given what the lease company ADD on? I don't get it - even now I'm sober. This still makes no sense otherwise the leasing companies would be going bankrupt all the time, and they seem to be making a nice little profit!
OK you can argue you can invest the money you've not put into the car, but the point with that is what you get back in interest payments is always less that you are charged to borrow, so again, that costs already baked into the lease numbers upfront.

it can't be cheaper.... it just can't....
 

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I can invest 50k and make more with it over 4 years, so I PHP. This only works with the low interest rates at the moment, you reach a point where you are better to buy the car outright as interest rates go up.

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I looked into it and even with the incentive to take the finance it would have cost me more. As a private purchase, IF one can afford it then it is cheaper to pay cash. Leasing makes more sense if one buys through a company where one can offset the VAT
 

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There are several differences..

Compared with buying outright for cash:

1. When leasing, I don't tie up my capital in the car. Instead, I invest it elsewhere and earn money on it.
2. When leasing, the risk of future residual value strength is taken by the finance company, rather than by the individual. Thus, leasing is a known cost and commitment.

Compared with borrowing the money to buy outright:

1. When leasing, I only borrow enough money to cover the cost of depreciation during my period of ownership, rather than the entire purchase price.
2. Again, the future residual risk is taken by the finance company, rather than me.

Compared to PCP:

1. There is not much in it either way, and it depends where the best deal is to be had.

In all cases, the finance companies can achieve better discounts than Jo Public, and can also source money cheaper than Jo Public. Of course, they add a mark-up, but they still offer a better deal than most individuals can achieve.

If you feel the need to 'own' the car, of course leasing is not for you, but for anyone who is not bothered about that and who plans to change their car every 3 years or so I am convinced leasing is a better bet.

The only caveats are:

1. You need to be able to predict your mileage reasonably well.
2. You need to be prepared to take good care of the car.

And finally, apparently J. Paul Getty said..

If It Appreciates, Buy It. If It Depreciates, Lease It...

If it was good enough for him...
 

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Discussion Starter · #5 ·
I'm going to going and ask Audi for a lease number for a SQ5, I'm 100% sure its more than what i will be paying.
Wife is an accountant, I'm more than happy with the principle of known or budgeted costs vs undetermined on going costs (or capex vs opex)- but thats proven and know to be in virtually all cases to be more expensive and is just an accounting trick.
 

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How much do you think your SQ5 will cost you over the first 3 years of ownership?

Assuming the day-to-day running costs (fuel, insurance, servicing, tryres etc) are the same either way, it's all about the cost of the money and depreciation...

So, if you buy the cost is.....

The Depreciation between what you pay to buy it and what you get when you sell it + The lost interest on the capital over the period

If you lease, the cost is......

The lease cost per month multiplied by the number of payments... (Usually, your payment profile will be a deposit + a number of months payment e.g. 3+35).

I KNOW how much my lease is and you will need to GUESS what your depreciation might be...


To get an idea of lease costs - take a look here...

http://www.yourfleet.co.uk/car_leasing/audi/q5.php
 

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Quattro, I agree with you about the uncertainties of depreciation, but the interest charges for PCP, HP etc will normally be in excess of the lost interest on capital invested
 

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But basic math says leasing can't work.
3 x 599, + 36 x 599 is 23.5k, even at the worst case, the SQ is not going to lose 50% of its value.
The lease works out you are paying 53% of the cars value based on the top cost price of £44055

Based on those numbers, against the published CAP valuations from May 2013 where the Q5 pulled 69.1% of its value after 3 years you are well behind. Personally i don't think the SQ will fair as well in terms of depreciation so lets say 60% which equates to £489.5/month, i.e. I'm over £100/month better off by buying it.

I agree, running cost are running costs, but it does matter if you do more than 10k/miles as the lease would be more.
But lets stay at 10k, its just easier.
 

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You are ignoring the lost interest on your capital...

But In the end, that's the gamble...

For simplicity if we use the 599 x 38 (3+35) = £22762. That will be the cost of leasing over 3 years @ 10k per year.

If you buy the car for £44,055, you could assume you could earn (approx) £4k on that (on a very basic investment).

So...

If retained value is 60% (so depreciation is 40% which would be excellent).... buying it will cost £17622 + £4000 = £21622 (You win by £150 over 3 years)
If retained value is 57% (so depreciation is 43% which is still good)... buying it will cost £18943 + £4000 = £22943 (You lose by £200 over 3 years)
If retained value is 50% (so depreciation is 50% - this could happen if there is a fuel crisis or Audi bring out a new model or whatever...)... buying will cost £22027 + 4000 = £26027 (you lose by £3,300).
 

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Quattro, I agree with you about the uncertainties of depreciation, but the interest charges for PCP, HP etc will normally be in excess of the lost interest on capital invested
I agree. But you only pay interest on the lease cost, not on the total cost of the vehicle.
 

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But... the car will be fully financed by the lease company - and while they tell you, you are ONLY paying the loan interest amount the reality is the cost/month includes the true loan value plus their costs on top of that. Yes, they can get cheaper loans, but given the bank of England interest rates it makes next to no difference right now.

I still don't see it, yes, you can future proof your monthly costs/TCO - but its not cheaper. It just doesn't work from a math point of view.
You are basically gambling that you will get money back on an investment. 3 year bonds are currently returning upto 2.65% (£4k/3years)
 

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Now you are making it far more complex than it really is.... I don't care what costs the leasing company includes or excludes or what the bank of England are up to. ... I only care about what I have to pay and avoiding the residuals risk and hassle.... and 4k earnings on 44k capital over 3 years is easily achieved. ...

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Which ever way you do the numbers it just doesn't work, its more expensive.
4k over 3years is the best deal offered right now based on the comparisons sites (2.65%)

Also factor in you have no flexibility/no access to the invested cash.
I still don't see it, but if people want a no upfront cost way into a car, or a fixed cost motoring i see it, its just not cheaper.
If you are buying a high % deprecating car maybe its a different story, but again that would be reflected in the cost.
 

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How can you say it's more expensive? I did the maths above..It's all about the residual value risk versus the investment return.

We will have to agree to differ. I'm happy with leasing - you are happy with tying up your capital in a depreciating asset with an uncertain outcome.
 

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I'm happy and I'm not looking to change peoples minds.
I wager 99.9% don't have or don't invest the money.

It boils down to choice, but its £499/month vs £599/month in simple terms.
 

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It boils down to choice, but its £499/month vs £599/month in simple terms.
Clearly I wasted my time showing you the maths....


As for whether or not people have the money - we all have different income/outgoings/attitudes to risk/attitudes to credit/attitudes to 'owning' stuff... no right or wrongs - only attitudes.
 

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It depends on the deal. I looked at leasing a Merc C63 AMG and was getting silly lease prices of around £650/month plus deposit. For a ~65k car this would barely cover the depreciation over the 3 years (IMO) so I would have ripped their arm off had it been 4WD. When I discussed PCP for SQ5 it was £850/month (IIRC), and I think I have a straight lease quote somewhere else for around the same (for what is essentially a 50k car). For me on this occasion it was cheaper to pay cash...

Simplified I know... but I too scratch my head about leasing from time to time...
 
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Completely agree. It depends on the deal. Those AMG Merc deals were crazy - discounted like mad by Mercedes...

If you are flexible on model, you can definitely get a bargain with leasing.
 

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1) Leasing companies have enormous buying power (a significant portion of the annual sales are lease cars) and the manufacturer has a dealer network that has invested heavily in premises, training, equipment and people to keep happy. If the manufacturer bypasses the dealer network as some of the big players like Ford and Vauxhall used to do and supply direct then the dealer network gets very pi$$ed off and the residual values plummet as the used vehicles re-enter the trade through auction.

Solution: get lease vehicles supplied through the dealers at a discount not far removed from what a retail punter can obtain....and then provide a retrospective kick-back in ££££ direct from the manufacturer to the lease company who is incentivised to do the volume so they make their lease rates competitive with a nice profit margin attached.

It's neat, the brand values are protected and the dealers have a sustainable business model too.

2) What would an individual lease a vehicle rather than buy it outright? If one leases a car as a business it is, in effect, a rental, so its off-balance sheet as it isn't an asset and is just a monthly cost. As a private individual leasing a car is about reducing risk, let's say in the next 2 years diesel becomes £15 a gallon because the oil states and got into another squabble? Our SQ5's at 37mpg will be worth not a lot, when you don't have your name on the V5 then the residual value isn't your issue...

Me? I did a PCP, the GMFV is enough of a safety net for my purposes. I have done Personal Contract Hire (personal lease) on Audis (my last A5 Cab was funded that way), the monthly payment was less than the projected depreciation had I funded the car with cash so it wasn't a hard decision to make. I couldn't find a comparable deal for the SQ though......
 

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It depends on the deal. I looked at leasing a Merc C63 AMG and was getting silly lease prices of around £650/month plus deposit. For a ~65k car this would barely cover the depreciation over the 3 years (IMO) so I would have ripped their arm off had it been 4WD. When I discussed PCP for SQ5 it was £850/month (IIRC), and I think I have a straight lease quote somewhere else for around the same (for what is essentially a 50k car). For me on this occasion it was cheaper to pay cash...

Simplified I now... but I too scratch my head about leasing from time to time...
That's is an insane deal on the Merc! Similarly if I didn't want the Quattro I would have probably looked at that at that price!

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