For a long time people have tended to buy cars in a couple of different ways. If they have the money they can walk down to their preferred car showroom and buy the car of their dreams, sadly, most of us just don’t have that much cash sitting around.
Most of us have traditionally opted to turn to ‘hire purchase’ or some form of car loan. We pay a deposit and then, over the next two, three or four years we pay the loan back – at the end of the term we own the car. Hire purchase with a final ‘balloon payment’ is just a variant of this that became popular through the nineties to the present day. In the same way as hire purchase (HP) you pay monthly. You still need a deposit up front, but, to bring the monthly payments down you choose to pay one final large chunk. In many cases people will sell the car at the end to pay for the balloon.
Now the problem with all these methods is this: The value of your beautiful new car starts to fall from the moment you’ve jumped in it and first turned the key.
I never realised quite how much money it costs to buy a car – I know, it sounds stupid, but how many of us have really added up the true cost.
Lets say you buy an expensive saloon for £50,000. If you pay cash for it and then, three years later sell it for £15,000, which is quite common, the maths goes like this £50,000 – £15,000 = £35,000 divide by 36 months = £972.22 per month. Oh dear.
How about HP – the story gets worse. Same car, but you didn’t have the money to buy it. Lets throw in some monthly payments of £550.00 per month. The car still looses the same value. Its now cost you £972.22 per month plus your monthly charge of £550.00 = £1522.22 per month – and you’ve probably got to sell the car to pay that £15,000 balloon that’s left.
This is why, when you discover private car leasing you wish you’d known about it for years – like the corporate car providers. At first you may think ‘I don’t want to ‘hire’ a car, I want it to be mine, all mine. But, is there really any difference?
With car leasing, you agree to hire a car for a set term, usually two or three years and keep to a reasonable mileage, often 10,000 a year but other deals are available. The monthly charges are often much lower than the HP equivalent.
For example, the £50,000 car above may cost you £600 per month. You keep it for three years and then, you don’t pay any more. You just give it back and get a nice new one. You don’t need to worry about selling it, and, all it’s cost you is the monthly payments. So, there you go. In a nut shell – buy on HP can cost you over £1500 a month when you include depreciation, car leasing can cut this to £600.
There’s no difference hiring to buying in regards to the feeling of ownership – when you visit the dealers they treat you just the same – I mean, they don’t care who’s paid for it.
My advice is this – if you haven’t tried this method of running a vehicle, its worth getting a quote before you throw another heap of money away of a fast depreciating asset.
