Silly car question #50: should I buy or lease my next vehicle?

Thursday, 11 April 2019

Mum might have said, we're all special – but that's definitely the case if you're an everyday Joe/Jolene looking to lease a new car.

Stats for last year reveal anyone taking this route last year without it being a business arrangement was in a very select group. Out of the 161,488 new passenger registrations, leases accounted for 21,500 (a 12.5 per cent slice). Just over 600 were cited as personal arrangements.

This unearthed when experts were asked: is it better for consumers to lease or buy a car? Anonymity allowed for fascinating insight. Did you know rental car firms often lease? Also, those one-tonne utes every one craves to own? They're risky due to high likelihood of damage yet also alluring because no residuals are tastier.

The ins and outs of leasing are simple: pay a set fee to use a vehicle for an agreed length of time. The initial payment is usually a few monthly instalments; it depends on credit/risk rating. Fixed monthly payments follow. Often, the longer the period, the lower these are. It comes down to expected usage.

Lease companies don't like utes because of their high probability for damage, but they love their fat residuals

Leasing is pretty simple - pay a set fee to use a vehicle for an agreed length of time., then give it back and walk away.

* Now you can buy a plug-in BMW for $5600

* Silly car question #42: how do I avoid getting door dings in carparks?**

There's freedom of choice over your vehicle's make, model and specification; basically, pretty much anything road legal is possible. At the end of the lease, the vehicle is simply returned, checked over, and your payments then cease.

The upside? You're driving a brand-new vehicle – perhaps a higher-priced, better-equipped model than you might be able to buy outright - during its most trouble-free years, also covered by a manufacturer's warranty, which might include free scheduled maintenance. You don't have to worry about fluctuations in trade-in value or go through the hassle of selling.

You can choose the make model and specification of a lease vehicle, just like if you bought it.

Downside? In the end, you have nothing but a memory. Leasing almost always costs more than an equivalent car loan. Private buyers don't achieve tax benefits that attract businesses. Also, there's no running away from your obligations.

The most obvious penalty comes is you abdicate an agreement early, but others lurk. A certain level of wear and tear is acceptable, however 'if the vehicle is not in a good condition when it goes back, you're going to get a bill'. Also, no modifications: it needs to stay in original configuration or you'll pay to put it back.

Don't shirk those mileage stipulations. Say a vehicle is leased for five years, at 20,000km a year – so, 100,000km for the period. If returned with 130k on the clock 'you're going to pay extra.' If it comes back with 70k? Bad luck. There's typically no credit.

Leasing is commonplace for vehicles bought for 'work'; a broad definition – from the fleet carpark hack to the swanky off-roader your managing director is driving. Passenger car leases generally run for 45 months; commercial vehicles for 60.

While leasing makes sense for businesses, buying outright makes more sense for private buyers.

For businesses, advantages are all to do with the bottom line. Budgeting is far more straightforward. There's no need to raise capital for a new car purchase. You know how much you're spending from the get go.

Sure, insurance and fuel are your concern, but a lease company will manage registrations and servicing. 'Fundamentally you have a clear idea of how much the vehicle is going to cost for the term of use.'

The concept of rental firms hiring the cars they in turn hire out might seem odd, but it works for quick turnaround.

'Typically they will have a lease for three, six or 12 months and once that expires the vehicles might go back to the provider, and then they get recycled – either through another rental company or going for sale.'

To the core question: you're one of last year's 600 – was leasing prudent? It all comes down to money. More specifically, income and circumstances.

First, understand this business is tailored toward business. Few lease companies even have interest in offering their service to the average consumer for private means.

The primary marks who categorise as 'personal' are 'people who are either asset-rich or have a good income, without necessarily having a lot of money in the bank.'

Which means? You've hit paydirt with a high-level exec position that pays hugely but will only be yours for a few years. You want a smart car commensurate with the job image. Leasing is a no-brainer.

You'll avoid having to lay out a big slab of cash for the car, there's no hassle of ownership and, a three-term lease term will synch neatly with most new vehicle warranties, some of which can be extremely generous. When it's over, you swan off to Waiheke Island and get an e-bike.

A lease built into a salary is called a novated lease. With this, an employer pays your fees from a pre-tax income. There's a downside: if you leave the job the vehicle, and its obligations, remain with you. It's more popular overseas than here.

The big over-riding gamble is depreciation. It's an unavoidable and NZ's is especially savage; it departs the showroom leaving behind a third of the cited value.

The lease rate will reflect the purchase price (which might not be the recommended retail, since providers can access decent discounts) and forecast value at end of lease. Getting that latter figure right is an art; but lease companies are like casinos – the house aims to win.

If you want a car for private use, it's better to buy. Ex-lease vehicles are plums. The trick is to identify their provenance: Most lease companies keep their names off the ownership.

'The value of ex-lease cars is recognised,' we were reminded. 'The majority are well-maintained and looked after because there's incentive for all the parties to do all that sort of thing.'