Sunday, 26 June 2011

cars - rent or buy it's a no brainer - gain £13k

I have often wondered why the cost of motoring is so high and that it is our second biggest capital expenditure after our houses/rent.

I have always bought cars as opposed to renting/lease.This, I think, makes economic sense??
My view on the transportation of humans has changed over the years as I become more aware of the impact of our gas-guzzling on the Earths' natural resource (no global warming argument, just common sense)
I see cars as lumps of recyclable material conveying their passengers to wherever.They are always just junk, some more luxurious than others. But what does a car have to do? Move/convey/start/stop/steer. after this, it is the aesthetics and individual needs, even if they are not really needs.What is worse than moving through a 50 mile commute with all the other rat-racers, jockeying for position. Leave all of this to the heavy haulage truckers, who are actually conveying goods rather than just fresh air.

The sums are fairly easy when considering rent v buy.

So, the maths are:

Buy a new car = £12420assumed on a loan at 7.6% = charge for credit = £1390asset remaining = £5975
loan repayments of £382 per month
true cost =  after 3 years  repayments and interest on loan £13752
The car is the yours and the remaining capital is £5975
So the outlay is high(ish) at £382 per month, but you have an asset at the end.The true cost is the £13752 - £5975/36= £216 p.m.



Lease a new car at £150 per month = £1680 p.a.
3 years = £5850
If you were able to afford to save the difference between loan repayments and lease you would have 36 x £66 = £2376 but with a compound interest of 3% it would equal £2488

3 year total cost example of a purchase at £13752 versus 3 year lease of £5850

If you change vehicle every 3 years then over a 60 year period, without inflation would equal £275040 with £119950 assets over the 60 years when buying. total = 275-119 = -ve loss of £156k
£117000 for lease plus investing the difference would give you £130k  total 117-130= +ve gain of £13k


It seems, after all, that leasing a car is cheaper over a 3 year period.
So, don't buy new... wow! what a difference. You don't get the debt and you have a new (albeit small) car to drive around in.

I'll stick with my purchased car and run it into the ground, then lease.

Bon voyage.

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