Car leasing

[worms]

I know what your thinking... Car Leasing = BAD IDEA!

My thoughts exactly but I am currently looking at the sums and getting lured over to the Dark Side!

I currently run an 11-year old Volvo V40, with 130,000 miles on the clock and am a high-annual-mileage user. I am in UK where car costs are higher than in US. I reckon my current monthly figures look like this (costs converted to USD):

Fuel.  $420
Insurance. $51
Depreciation $120
Maintenance/tyres. $90
Road tax.  $30
TOTAL. $711

Son will be learning to drive later in the year and insurance will go up to about $150 per month, so total will rise to about $800 per month.  Shocking total, I know.

Lease deal would be on a new Volvo V60, so roughly equivalent car but brand new to my own spec.
Lease deal is through my employer and would include all costs except fuel (but including insurance covering the whole family, including my son as a learner).  I've tried the new car and the much improved fuel efficiency would bring my fuel costs down to about $225 per month.  It looks like the lease would cost me about $500 per month, implying a total car cost of $725.

Risks are: if I walk away from the job I need to pay early termination costs.  Depending on actual balance of business versus personal mileage, there will be an income tax charge on the imputed benefit.

But at present there is the risk of an early terminal problem with the existing car and the need to raid the stash for a sudden unplanned replacement.

Going over to a brand new car just seems plain wrong but in cash terms it seems to stack up.  Am I missing something?

[Khan]

For one thing, you're looking at new cars when you should be looking at cars at least a couple of years old. Another thing is I would compare the rate of leasing the car without your employers deal compared to with them, as I know the british car market isn't anything like the US market(you guys pay ~2x what we pay on cars I think). Other things to consider are: do you need a car? I know the London Underground is pretty renowned as being a great municipal transport service, dunno where you live but you may not need a -car- that badly.

Another thing, is one of the takeaway's I got from the book "Millionaire Next Door" was that a lot of those who become millionaires may or may not have vices, but find ways of frugally having them. An example is there was one who enjoyed having new-er Mercedez. His solution? Pick up the 3 year old models at a steep discount, he get's his constantly improving Mercedez, and at a much cheaper price then anybody else, as the 3 year old ones had depreciated a lot of the way that they would depreciate, and after that the rate of depreciation slowed(and he was picking them usually off of the 3 year lease).

[worms]

My strategy has always been to buy high-quality, low-mileage cars at 7 or 8 years old and run them until something major crops up.  Had the current one for four years now and would hope to get a couple more years out of it at least.

I had always assumed that leasing was cheaper than buying for new cars, but way more expensive than running an older car.  However it looks like the improved fuel consumption and the insurance cover are much more significant factors than I had imagined. A private lease deal would not include the insurance, and for my mileage would be prohibitive.

I'm really not sold on the leasing idea, but it would be daft not to keep an eye on all the options and the comparison has surprised me.

I agree that London Underground is great, but it is about 800 miles away! :)

[matchewed]

No offense intended but that is a terrible apples to apples comparison. In your used car analysis you include all sorts of factors you do not for your leasing option. Add those into the analysis and see what you get. Unless your lease covers Maintenance/tyres and road tax. Assuming those are flat you're looking more at 845.

So 845 per month compared to 800 per month. You can sock away that 45 per month into savings. Frankly it'll be cheaper in the long run to keep running your old car.

[worms]

The lease cost in this deal includes everything except the fuel. 

The only thing that I am aware of that I can't properly quantify is the imputed taxable benefit of the deal, which would lead to an increase in my income tax bill.

[matchewed]

Can you just buy a more fuel efficient used vehicle?

[Inquizator]

Can you just buy a more fuel efficient used vehicle?

This.

Most of your saving with the leased car scenario is fuel. The total of your other costs (using $150 for insurance and keeping the $120 depreciation) is $390... $110 less than the $500 lease. So you're paying an extra $110 for the $195 improvement in fuel costs (meaning you save only $85).

So if you can find a used car which has fuel efficiency between the current vehicle and the new one, then you'll win. If you get fuel costs down to $335 ($225 + $110) then it's a wash. If you can get lower then you're saving money. I would think you could find a used vehicle with similar fuel efficiency to this new one... Unless it's a new hybrid or something?

[fiskeb]

I think you're going to complicate your life and destroy your employer's car with high mileage and a teenager.  As this car is slowly being destroyed, your employer sees this every day?  Will this cause conflict? What kind of shape does it need to be in upon return?

I tend to get too caught up in the math on decisions and have to force myself out of it occasionally, and that is what I see here.  I like cheap but also simple.