Car Leasing Blog

This article is mainly aimed at car finance, but can mostly applied to different types of fixed interest rate loan.

Hire Purchase is the most common type of finance applied to cars, and it is important that you understand how it works and how to calculate payments. This way you can understand how much you actually repay monthly and over the term of the contract.

For the purposes of the example, we will assume a £12,000 vehicle over a 4 year contract (48 months) and an interest rate of 5% base.

Step 1 : Remove the bits you wont repay

Nominally this is the deposit (and possibly a baloon payment, but lets leave that for now)

So lets assume a 10% deposit giving £1,200.

This leaves an amount to finance (ATF) of £10,800

note. The deposit could also be any part exchange money you have recieved.

Step 2: Work out the annual interest

Take the ATF and calculate the annual interest from the base rate like to

10,800 multiplied by 5% = £540

This is the amount you will repay for the facility annually.

Step 3 : Work out the total interest

This is the part often overlooked. Take the annual interest and multiply by the number of years the contract will last for. (in this case 4)

Method 1: £540 multiplied by 4 = £2160

Method 2 : (5% * 4)*ATF = 20% * 10,800 = £2160

Step 4: Add the interest to the ATF

10,800 + 2160 = £12960.00

Step 5 : Divide the total amount into the number of monthly payments

£12,960 divided by 48 = £270 per month

There you go, thats your payment. Next time you get a quote from the dealership you will now be able to work it backwards and calculate how much its costing you.

Enjoy, see you next time

Lets start from the beginning - the two conventional ways of purchasing or driving a vehicle are as follows:

1. Buy it cash (or remortgage,loan,etc)

2. Get it on finance (almost always Hire Purchase)

These have been the most popular ways of aquiring a new vehicle conventionally, and have worked for some time. But they are out of date, and this article will reveal the reasons why.

Who is this article aimed at?

Anyone who drives a car personally, be it through car allowance for work or for picking up the kids and shopping. I have decided to give two forms of information in this article, the laymans view and the mathematical view.

Firstly though, let me say this - the second you mention leasing to most people (82% of the population actually) they reply “I like to know that I own it”

Wrong!

Most consumer vehicles are purchased using HP (Hire Purchase) in this country, and as such you dont own it until you have made payment of the admin fee with the last payment! Check your documentation, and tell me I am wrong.

The consumer rotation for vehicles in the UK (this is the average amount of time a consumer keeps a car for before selling or part exchanging the vehicle) is 27 months. So on the most part, no body owns their vehicle (when it is a new or newer car).

Buying A New Car With Cash

Ok, so this also entails using a credit card or other type of loan where you would just walk into a dealership and write a cheque or hand over cash.

The biggest problem with buying with cash (we’ll call it BWC from now to save hand cramp) is its dead money. John Paul Getty (the richest man ever recorded to you and me(yes it was more than MicroGates)) once said “If it appreciates buy it, if it depreciates lease it”. What this mean is, if you have got £15k lying around to throw at a new car, it would be better off somewhere earning money (house,kitchen even the dreaded ISA) than sat on the drive getting wet,rusty,scratched and slagged off by any motoring journalist that didnt get one for free.

Now you wouldnt buy a new kitchen and flat screen tv to leave it outside in the rain would you?

New cars (in the 27 month period we keep them) always (with the possible exception of Veyron’s and such like) depreciate like bricks. Normally, your average family saloon is worth about 25% of its new value after 3 years of use and kids spilling KFC in the back.

So, in short - it may well feel really good to go into a dealership and weigh in 20 grand for the new motor (and I know, have done it plenty of times in the past) and you may well feel that the salesman holds you in great regard for doing so, believe me its not such a great idea and the salesman isnt thinking about your 20 grand, he’s thinking about the next pair of Next shoes he’s gonna buy with the commision you are about to earn him.

Hire Purchase

Done incorrectly, quite possibly the most expensive way of having a new vehicle. You pay for the lot. Car, Depreciation, Sales Commision, Interest,etc,etc

Quite alot has been investigated about the way cars are purchased this way, even to the point whereby APR (A load of tat to you and me) has pretty much been outlawed and replaced with AER (A lesser load of tat to you and me). I have seen APR’s which equate to massive base interest rates that would litterally scare the life out of you if you actually knew what the APR actually mean in terms of £’s.

If you are going to HP, read this section very carefully - and its not difficult not to get stung - Ask for the base interest rate!!!

They may be reluctant to give you the base rate, but insist - this is your money. The base interest rate will tell you, per year how much money (as a percentage) you will pay to the finance company for the facility of borrowing the money.

Here come the examples:

Example 1:

£10,000 loan

5% Base rate of interest

4 year loan

The calculation is 5% of the loan (£500) multiplied by the term (4 years) giving the total amount you will pay to borrow the money (£2,000)

So you can see you are paying £500 per annum for the facility, giving a total interest paid back of £2,000 (or 20% to the ever protective finance boys).

Once you have the base rate, make your descision weather you are going to do the deal or not.

Ok, So Tell Me Why I Should Lease

No, shant

I spend most of my working life telling salesmen to stop pushing the product and start pushing the facts, so I’m not going to tell you why you should, I am just going to tell you what the difference is and why I think its a better product.

First of all, the fundamental reasons why its a good idea.

1. Fixed monthly cost - If you bought the car with a credit card, the cost goes up and up. If you buy a second hand car, the inevitable maintenance costs and out of warranty repairs will have you crying into the credit card statement in no time. With a personal lease, you will pay a fixed monthly cost throughout and - if you’re sensible - get rid of the thing before it runs out of warranty.

2. Not Liable For Residual Value - On a lease, the residual value is fixed, so for example (yes i know its the second example) when a well known TV journalist decides to run your car down (because he or she didnt get a free one) just after you bought it, and the resale value hits the floor, the finance company take that strain - not your wallet.

3. Purchase Aggregation - This one is a little more complex, but everything is cheaper on bulk, especially cars. A leasing company will buy 1,000s of cars in one sitting, realising a massive discount which, in most cases gets passed on to you. These sort of discounts you will never get with your Tesco’s bag full of cash, no matter how many friends or family you have working at the plant.

4. Overhead reduction - Leasing companies (on the most part) dont have showrooms full of cars,lights and lazy salesmen, they normally have offices with computers and administrators. Carefull Though, there are a few that are run out of bedrooms and home offices - you will not get the support you need!

Basically with personal leasing, you only pay for the bit you are using, so when you get the idea out of your head that its not yours (and believe me, its nothing to boast about - a bit like boasting “May house value went down 20% last year - yey!”) it actually becomes a really viable option.

How do I know? because the personal leasing sector is growing. Massivley. Try 18% per annum for the last 7 years, and its picking up speed.

Any questions?? Crack on and ask them. I check this thing all the time. And if you wouldnt mind linking to this article, please do.

This free tool, will calculate CO2 values, Fuel MPG and Fuel Costs within a few seconds.

It can certainly help make a descision on your new vehicle, or even find out what miles per gallon your car should be doing!

http://www.ultracar.co.uk/calculator/index.asp

I think we are all aware that on July 1st 2007 new legislation came into force regarding smoking in Public places. One of the spin-offs of this legislation was the impact that the no smoking law would have on the motor vehicle industry. What it says is that: Any motor vehicle used in any course of paid or voluntary work by more than one person (even if those persons use the vehicles at different times, or only intermittently) needs to be smoke free and display a no smoking sign The Following rules apply:•         Employees who have a company vehicle for their sole use may not smoke while carrying colleagues for work purposes.•         Employees who have a company vehicle for their sole use may smoke whilst carrying colleagues to and from a place of work as these journeys are counted as private use.•         Drivers will not be allowed to smoke if it is used by more than one employee (i.e. pool cars, as colleagues driving or being a passenger in that vehicle might later inhale their smoke).•         Employees sharing a pool car will not be allowed to smoke in the vehicle, even if all the users of the vehicle are smokers.•         A shared company vehicle is exempt from the smoking ban if it is a convertible – but only when the roof is down The good news is that ALMOST all drivers are complying with the smoke free laws, according to the latest inspection figures published by the Department of Health. Enforcement authorities inspected 10,366 vehicles - taxis, private hire vehicles, coaches and buses - in August and found that the overall compliance rate for no-smoking was 98.6%, with little regional variation.

The overall signage compliance rate in August was 92.2%. It varied between 73.8% in the West Midlands and 98.5% in the North East.In the first two months of the legislation being introduced in England, the enforcement authorities inspected a total of 22,179 vehicles and found that the no-smoking compliance rate was 98.2% with a signage compliance rate of 88.8%.  There is no doubt that this legislation will hep make us a Healthier and Safer driving population

Over recent months, Audi have become more and more agressive with their leasing products, and yet this would seem a strange move, for a multitude of reasons.

Audi have almost always maintained supply, just less than demand. For example with an Audi TT, everyone has to go on the waiting list. To this effect, there is a certain amount of prestige available from waiting for a car.

Keeping the vehicles always in demand has one major influence on the leasing costs - While the vehicles are in demand, the residual value of said vehicle remains with strength.

Once a couple of years have passed, with the RV’s (residual values) holding strong, it is now time to start pushing the vehicles heavily into the leasing market (because you only pay for the difference between invoice cost and residual value).

The added bonus to Audi has been that more and more, car manufacturers are moving toward supply on demand, and not stock piling. This brings everybody else inline with their delivery timescales, so if you want a BMW 1 series instead, you will still have to wait for it now.

The same applies to Golfs,Leons and alike.

Provided car manufacturers continue to stretch delivery schedules for vehicles, removing the option for the customer to stroll into a dealership and pickup an alternative, Audi will continue to flourish in the personal and business leasing world. I have even seen prices for A3 Hatchbacks at less than £200 per month!!!

 At least this article give an insight as to why.