I tend to buy cheaper cars in cash - and expensive ones on finance. The main reason is risk.
I'd rather have a year of cash and a leased car - than an expensive car and a month of cash. Needing to sell an asset is different to selling an asset and will impact the price.
The key thing is matching the right financial product to the individual - for some paying cash and managing their own risk works well, for other monthly finance costs and having someone else carry the risk is better.
I was talking with a dealer not too long ago about how the finance houses really don't like being beaten at their own game. In a lease there are 3 sides - the buyer, the garage and the finance house. The lease value is the monthly payments + the final payment. Simple.
The fun begins when the value of the car (either market or part exchange) is below the lease value. There are 3 options towards the end of the lease:
1) The customer makes the payments and final payment - and basically ends up with a highly deflated asset.
2) The customer makes the payments and then hands the car back to the dealer - who makes the final payment to the finance house - and ends up with a deflated asset.
3) The customer hands the car back to the finance house in accordance with their depreciation curve - and they end up with a deflated asset.
The dealer then went on about how many people were stung with the currency shifts in Switzerland a few years back and were tied into leases where the outstanding lease value was much greater than the asset due to rapidly falling used prices. People handed the cars back in droves and went to the dealers for new ones. Eventually the finance houses cottoned on and stopped relending to them - despite the termination of the lease not being flagged in a general credit check.
It gets better - certain manufacturers have internal finance houses and tend to advertise great deals of new cars (a Swedish firm was pushing run out models of their estate based activity vehicle) - with a big discount and then low leasing costs. It took 5 minutes chatting to a salesman for them to admit that they refuse to do leases based on the conditions in the advert - as they would be liable to carry the future value of the car - and that was hopelessly unrealistic.
One final game they play is the "cheap" finance offer (0-1.9%) when the final payment is very low - meaning the customer is carrying the risk of depreciation as opposed to the finance house or the dealer.
Once you know how it all works - you can make leasing work for you over here.
Finally, in Switzerland the vast majority of properties still carry a mortgage - with most never being paid off. Instead of pumping 800k into paying off an 800k mortgage (on a 1m property) people pay off the 133k prior to retirement - and put 667k into a pension pot.
Last edited by dodgyken; 25/04/17 01:42 PM.
