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Arblease how it works

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2 hours ago, GA Groundcare said:

Indeed, so many folk get sucked into "I can afford those figures per month" but actually  have no idea on the mechanics of the deal they've just signed too.

True. I've heard a few people recently say that car leasing might be the source of the next recession as terms come to an end and people realise that they are responsible for an over-inflated residual. 

 

Had a guy come to me for funding on a BMW i8 recently. Wanted to lease a used one, and I quoted him some pretty good numbers. He came back with a quote on a brand new one which was cheaper. When I did the sums it turned out that the new quote was based on a totally unrealistic depreciation rate...the client just wouldn't accept it, and was adamant that the lease on the new motor was cheaper than my quote on a used one, even though I explained to him how he would actually end up with about £10,000 of spare equity at the end, rather than being in the hole for up to £30,000 of overestimated residual.

Edited by ForestryFinance

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14 minutes ago, ForestryFinance said:

True. I've heard a few people recently say that car leasing might be the source of the next recession as terms come to an end and people realise that they are responsible for an over-inflated residual. 

 

I think you are right. Stereotyping here I know and just using this as an example, your average 20 year old woman can’t afford to buy a new car outright. However she can afford £99 a month. So she gets a brand new Fiat 500. It becomes three years old, she’s given a price of 5k to buy it which she doesn’t have. But she can afford a new Fiat 500 at the latest offer price of say £109. Completely backwards logic but it works for her. Doesn’t work for the overall economy when multiplied into the millions. 

 

I think that’s why if you listen or watch car adverts lately. Audi, BMW, Land Rover etc they are solely pushing approved used, two years warranty etc. 

A crash is looming. 😬

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6 hours ago, ForestryFinance said:

True. I've heard a few people recently say that car leasing might be the source of the next recession as terms come to an end and people realise that they are responsible for an over-inflated residual. 

 

Had a guy come to me for funding on a BMW i8 recently. Wanted to lease a used one, and I quoted him some pretty good numbers. He came back with a quote on a brand new one which was cheaper. When I did the sums it turned out that the new quote was based on a totally unrealistic depreciation rate...the client just wouldn't accept it, and was adamant that the lease on the new motor was cheaper than my quote on a used one, even though I explained to him how he would actually end up with about £10,000 of spare equity at the end, rather than being in the hole for up to £30,000 of overestimated residual.

I have been saying this to people for the last three years. Although I believe PCP or whatever acronym they are using now is the problem. JLR are downsizing, Honda closing in the UK, it will happen. One things for sure, i'm gonna have a lovely choice of fairly new one owner cars in a couple of years time. When they can't afford to keep up the repayments and the dealers wont take the car back as its worth substantially less than is owed. 

 

Always stuck to no balloon, 36-48 months with at least a 20% (EDIT +20%VAT) deposit. If you cant make those numbers (or better) work then you cant afford what you want. 

Edited by Jonny69
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8 hours ago, Jonny69 said:

Always stuck to no balloon, 36-48 months with at least a 20% (EDIT +20%VAT) deposit. If you cant make those numbers (or better) work then you cant afford what you want. 

Very sensible. 

I see what you're saying about no balloon, however I personally don't mind building in a balloon, but doing so sensibly. For example I bought a Ford Ranger not long ago, £5,500 deposit and then I put a £5,500 balloon at the end. The car will be worth at least £10,000 at the end of the term so I will have plenty equity, but also I know that the finance co I'm with will let me spread that £5,500 balloon over 12 months if I want to when the time comes, and if I want to keep it. If I don't, then I have another £5,000ish to use as a deposit on my next motor. 

 

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1 hour ago, LeeGray said:

Doesn’t that mean you’ve paid interest on five grand you never really borrowed?

It does mean I pay interest on that £5k yes, however its not money I've never borrowed...I have borrowed it, the finance company paid it to the supplier of the vehicle. 

Being a broker I also get preferred interest rates of course 😉

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I'd personally borrow from the bank the intended amount, interest is usually (I haven't looked at any figures) less than that of finance, and you own it outright, you can usually overpay without penalty, so if you have a good period, hammer the loan away

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7 minutes ago, Carl1991 said:

I'd personally borrow from the bank the intended amount, interest is usually (I haven't looked at any figures) less than that of finance, and you own it outright, you can usually overpay without penalty, so if you have a good period, hammer the loan away

Its loads easier to get finance than a bank loan imo..... usually finance companies will just throw it at you if you want it..... banks are crap nowadays

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Personally, I only try and use finance on items I intend to keep long term. Or rather kit I intend to keep long term I buy new as with low depreciation in plant I often think it costs the same to buy new over the long term. 

My method is to put down as a deposit the amount I think the kit will be valued(sell for) after the term I I intend to keep it for- I then spread the finance over half that term.

so for example if I buy a digger new which I intend to keep for 10 years and I think I’d get £10k for it then, I’d put £10k down as the deposit and finance the rest over 5 years, feels like I get 5 after that where the machine is then working for me knowing il get enough in resale to deposit the next machine.

 

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3 hours ago, Matthew Storrs said:

Personally, I only try and use finance on items I intend to keep long term. Or rather kit I intend to keep long term I buy new as with low depreciation in plant I often think it costs the same to buy new over the long term. 

My method is to put down as a deposit the amount I think the kit will be valued(sell for) after the term I I intend to keep it for- I then spread the finance over half that term.

so for example if I buy a digger new which I intend to keep for 10 years and I think I’d get £10k for it then, I’d put £10k down as the deposit and finance the rest over 5 years, feels like I get 5 after that where the machine is then working for me knowing il get enough in resale to deposit the next machine.

 

This is a smart way of doing it. Though you might consider only keeping the machine 3-5 years. The difference in cost of ownership over the period would be very minimal and you would get a shiny new digger with warranty more often. 

 

Tree surgery kit is easy to finance because the residuals are high, rates on it should be good as well. Want to finance a printing machine, floor cleaning equipment, workshop tools (not spanners and sockets) etc and things get more difficult as they are items that are basically worthless very quickly. 

 

On the vehicle PCP issue. I once had someone say to me they were going to use a credit card to pay the deposit on PCP for a brand new car. The person earn't around 16-18k and wanted a 35k car. I suggested this was not sensible however the car dealer had it all agreed ready to go. Never found out if they signed the paperwork but it sounded frightening to me. 

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