A wise man once said, ‘If It Appreciates, Buy It – If It Depreciates, Lease It’. This man was none other than billionaire oil baron J Paul Getty; he knew a thing or two about making and keeping hold of his money.
People can sometimes liken car purchases to a home purchase, as two of the biggest purchases you are likely to make in your lifetime. Renting a home is viewed by many as dead money, but is car ownership economically sensible?
Think about it, a home is generally an asset which will appreciate over time, providing it is looked after and maintained of course. Can we say the same for vehicles?
Cars are renowned for their depreciation. I remember a time a few years back, working in a car dealership, a gentleman came in and purchased a lovely shiny new Scirroco. He waited eagerly for his car to arrive, turned up at the dealership on collection day and took possession of his beautiful new car, only to drive if off the forecourt and discover it was too powerful for him and he couldn’t handle it. The next day, he called the dealership and asked if he could return it. Unfortunately, cars are not like a suit that doesn’t fit, this model had been built to his specification and the best the dealership could do was offer him trade in price for the vehicle, which was a few thousand pounds less than he had paid the day before.
I can only imagine how disappointed the gentleman was and, while this may be an extreme case, it highlights just how much cars depreciate the second they are driven off the forecourt.
Within a couple of years, the car has depreciated further still, worth a fraction of the retail price new. On top of this, cars are not generally something we envision ourselves being with forever, the way we do with our homes. Technology moves quickly, new cars with flashier gadgets and better emissions come out every year, so who wants to be stuck with something outdated?
Leasing has been used in business for years as a way of dealing with these issues. After all, businesses don’t want to have depreciating assets on their books where possible.
Ultimately, the benefits of leasing will vary depending on your own personal circumstances. If you are someone that likes to have the latest model, technology and peace of mind, leasing is certainly worth checking out. If, however, you are someone that keeps your car until its run into the ground and has no more miles left in it, a purchase is probably the way for you.