If you want an idea of the calculations here goes...

OK, let’s assume you have the capital to buy outright and are a private buyer and you intend keeping it for 2 years. Let’s also assume we’re buying a 2 year old Sport for about £36,000 with average mileage of 24,000. It will need taxing £465, and a set of tyres in about 9 months at a cost of say £800. Assume it has just been serviced by the selling dealer and so you will need to give it a 36,000 mile service in a year at a cost of say £700, by which time it will also need and MoT (say £100) and taxing again at £465. If you are selling after 2 years you are not likely to want to pay for a 48kmile service or MOT.

The question is – how much capital do we need to keep reserved to buy and run the car? If we assume we can get about 6.2% pa real return we effectively loose that ‘gain’ by buying the car. But the later costs give use time to keep some capital invested which can growth and meet these future payments.

So today we spend £36,465 to buy and tax the Sport. In 9 months we need to find £800 for the tyres (6.2% is about 0.5 per month) so we need about £760 capital today. Similarly the MOT, tax and Service (£1265) next can be met with capital of about £1,204 invested today.

Thus the total capital we’d commit at today’s prices is £38,429. Since we own the car we can sell it for say £22,000, but we must wait 2 years, the value today is £20,930. So financing the 2 years ownership has effectively reduced today’s value of our capital by £17,499.

Had we decided to fully lease the car the leasing company would probably add all the costs together and include the MOT and Service at the end of the period. This is £39,795, they (leasing companies) commonly use a simple approach to interest so will say that is 6.2% for two years i.e. £4,935. As they expect you to pay about 3 months up front that is about £5,591 i.e. £44,730 over 24 payments that is £1,864 per month approx.

In order to compare this with our cash buying option we need to see what the capital equivalent of these payments are in today’s money i.e. £5,591 today plus the present value of the remaining 21 monthly payments, which is £18,130. Thus we’d need £23,721invested to cover the stream of payments.

So we could by the car and commit £38,429 but end up with a car worth £22,000 in 2 years or we could lease it and commit £23,721of capital and end up with nothing. In money terms the cost difference is between £17,499 and £23,721. In terms of your net worth you are £6,222 in pocket at today’s prices.

Just note we have used the same interest rate for both cases whereas in the real world leasing is usually at a higher rate. I have ignored any deposit because that is simply a current year capital commitment. We have also ignored any Benefit in Kind tax payments and any special company conditions where leasing may be good because of cash flow versus capital advantages.

"If we assume we can get about 6.2% pa real return"

where and how, and at what Sharpe?  ============
2010 TDV8 HSE - ooo laa laaaaaaaaa
2007 TDV8 HSE - superb car and very reliable
============
2012 - dearly departed, sadly missed.. to return in late 2013 with a new TDV8!

Its set at that rate so you can see the difference without it being masked by the difference in savings and borrowing costs.

If you get say 3% return on capital then its even more in favour of a cash buy.

Couple of things I'd add.

Cash buying your market for finding a car is much greater so generally a cash buyer gets a better deal (or i always do) So id assume the same car will cost less to purchase CASH than via a lease option.

Plus if you loose 14k on a RRS in 24 months your buying the completely wrong car or paying far too much. Benefit of cash purchase is that you can buy the right car at the right price at the right time and more importantly sell at the right time.

Ive owned 8 RRS for varying periods of time and I've yet to loose double K figures, in fact nowhere near.
I've yet to pay 800 for a set of tyres
I've yet to pay 700 for a service.
Tax of course I pay

Lease will assume all of the above to be true along with estimated depreciation plus 15-20%

The only way leasing works IMO is if the depreciation is much worse than estimated, which very rarely happens.

Totally agree XPea, I used the numbers of the OP on other stream just for comparison.

Totally agree XPea, I used the numbers of the OP on other stream just for comparison.

Of course private cash purchase is always going to be less expensive than any financed purchase, how much cheaper will vary.

To cut overall ownership costs you can buy cheaper tyres, skip on a warranty and do your own servicing. You can view a number of cars and haggle to get a deal you want, and when you come to sell you can sell for a price that suits you. However, I am not exactly sure what you mean by "sell at the right time" ?

However, not everyone has the time or inclination for all that. Some people want to pay their money and step into a new car. They then want to have branded tyres, a warranty and dealer servicing.I have only taken my 3 series to BMW, have only fitted oe brand tyres and kept the servicing 100% up to date. This costs a bit more but I am happy I am not cutting corners just to save £100 here or there.I am taking the car to people who should know what they are doing. A courtesy car has always been made available and they have done all warranty work without question.

While contract hire is probably the most expensive method of financing a new car, for some it's an option worth considering.

x5pea wrote:

Couple of things I'd add.

Cash buying your market for finding a car is much greater so generally a cash buyer gets a better deal (or i always do) So id assume the same car will cost less to purchase CASH than via a lease option.

Plus if you loose 14k on a RRS in 24 months your buying the completely wrong car or paying far too much. Benefit of cash purchase is that you can buy the right car at the right price at the right time and more importantly sell at the right time.

Ive owned 8 RRS for varying periods of time and I've yet to loose double K figures, in fact nowhere near.
I've yet to pay 800 for a set of tyres
I've yet to pay 700 for a service.
Tax of course I pay

Lease will assume all of the above to be true along with estimated depreciation plus 15-20%

The only way leasing works IMO is if the depreciation is much worse than estimated, which very rarely happens.

I would still agree with xpea

£700 for a service, main dealer etc is far too high.

Tyres - well assuming all the assumptions £250 for a genuine a corner could be realistic, but if you havent been rotating them then you likely to not need all 4 at once

I think there are far too many other factors than considered...but as none of this applies to me - im not going to say any more. Mike

2014 Facelift Discovery

gavink wrote:

Of course private cash purchase is always going to be less expensive than any financed purchase, how much cheaper will vary.

To cut overall ownership costs you can buy cheaper tyres, skip on a warranty and do your own servicing. You can view a number of cars and haggle to get a deal you want, and when you come to sell you can sell for a price that suits you. However, I am not exactly sure what you mean by "sell at the right time" ?

However, not everyone has the time or inclination for all that. Some people want to pay their money and step into a new car. They then want to have branded tyres, a warranty and dealer servicing.I have only taken my 3 series to BMW, have only fitted oe brand tyres and kept the servicing 100% up to date. This costs a bit more but I am happy I am not cutting corners just to save £100 here or there.I am taking the car to people who should know what they are doing. A courtesy car has always been made available and they have done all warranty work without question.

While contract hire is probably the most expensive method of financing a new car, for some it's an option worth considering.

x5pea wrote:

Couple of things I'd add.

Cash buying your market for finding a car is much greater so generally a cash buyer gets a better deal (or i always do) So id assume the same car will cost less to purchase CASH than via a lease option.

Plus if you loose 14k on a RRS in 24 months your buying the completely wrong car or paying far too much. Benefit of cash purchase is that you can buy the right car at the right price at the right time and more importantly sell at the right time.

Ive owned 8 RRS for varying periods of time and I've yet to loose double K figures, in fact nowhere near.
I've yet to pay 800 for a set of tyres
I've yet to pay 700 for a service.
Tax of course I pay

Lease will assume all of the above to be true along with estimated depreciation plus 15-20%

The only way leasing works IMO is if the depreciation is much worse than estimated, which very rarely happens.

Nice way to be condescending to people whom you asked for advise in the first place. U think i put budget tyres on my cars and service it on my drive way?

The point i was making is that I've never paid 250 for conti tyre, or 700 for a LR service. I too value the main dealer service dept i also value the £100 saving here of there which you referred to as cutting corners.

I buy the right car at the right price at the right time and sell at the right time to minimise my TCO. I appreciate not everyone has the inclination to save money.

As far as i can see the only reason to consider PCP, PCH etc etc is if you can't afford the car in the first place. From a business perspective as I've said elsewhere there are more things to take into account.

My advice would be, if you are taking a motor out on CH then never ever take out the maintenance package , they charge you full wack on everything including tyres, you can save yourself a fortune shopping around for such things as servicing and tyres.

Ady 555 wrote:

My advice would be, if you are taking a motor out on CH then never ever take out the maintenance package , they charge you full wack on everything including tyres, you can save yourself a fortune shopping around for such things as servicing and tyres.

Am I missing the point here , I would expect someone who is parting with £30k plus for a car to understand the differences between the various types of purchase and finance agreements; and also as x5 and Ady have said be savvy enough to shop around to minimise the cost of ownership.

I personally think if someone couldn't work out the various cost outcomes for their purchase then I'd question how they managed to muster together the money for this sort of purchase in the first place

Just my 2p.  ON THE WAY: BMW F21 M140i
MERCEDES GL350 - Metallic Navy Blue w/Grey interior

GOING: BMW F31 335D MSport+ xDrive Touring
GONE: Land Rover Discovery 4 HSE - Stornaway Grey w/Black Interior (wish we'd kept it )
GONE: BMW F10 520D MSport - Carbon Black
GONE:MY12 RRS SDV6 HSE Sumatra/Ivory/Grand Black Privacy glass

Beancounter - you're right - I only did the example because of a post by navink "Best way to purchase? Contract Hire?" and the 'noise' in the discussion that followed.

The truth is that many people (inlcuding professionals like accountants) can't work out their own mortgages etc because of trhe mystic of interest rates and/or inflation.

Its just a discussion.

Condescending? Maybe a bit...........

I'm just trying to gauge the difference between the 2 purchase options and I appreciate the advice and opinions.

I understand that it is possible to reduce overall ownership costs by avoiding franchised dealers etc, but the figures I posted previously of
so say £36k for the car, plus £920 for RFL, £1k for servicing and MOT work? £600 for tyres? Extended warranty?
So whats that? £39,000? And resale value in 2 years would be £22k?(or less if the 1k per month depreciation figure from earlier is used) So a cost of £17k for 2 years.

Are these figures really that far away? 325d m sport coupe looking to change to RRS

drdelrrs - you misunderstood me (I think), not knocking your post and fully understand it's 'just a discussion', as mine is 'just a response'

Yes, interest rates and discounting future cashflows can confuse matters, but again to quote a cliche I hate 'it's not rocket science'
I think I was probably more questioning in my mind someone asking for a form of 'financial advice' on a car owners site  ON THE WAY: BMW F21 M140i
MERCEDES GL350 - Metallic Navy Blue w/Grey interior

GOING: BMW F31 335D MSport+ xDrive Touring
GONE: Land Rover Discovery 4 HSE - Stornaway Grey w/Black Interior (wish we'd kept it )
GONE: BMW F10 520D MSport - Carbon Black
GONE:MY12 RRS SDV6 HSE Sumatra/Ivory/Grand Black Privacy glass