Leasing a car for work
- Thread starter jmillar
- Start date
Okay so let's move on from the new vs used car discussion, and look at leasing vs buying. For the purpose of this exercise I'll use a $50k brand new car (although I'll probably end up being a tightass and getting a $30k used car).
I've used the ANZ calculator which is nice and simple, and used their current standard interest rate of 7.63%.
$50k car, 5 year term, the repayment is $1004.99/month to pay off the $50k Principal and $10,299 Interest over the life of the loan (total $60,299). At the end of the 5 year term let's assume the car is worth $25k.
If purchasing:
Year 0: Pay $50k
Year 5: Sell for $25k
Year 0-5: Save $60,299 rather than pay down car loan
Cash/equity at end: $85k
Spend during 5 years: $50k
Net position: +$35k
If leasing:
Year 0: Use $50k as deposit for $400k worth of neutrally geared IPs @ 90% + purchase costs (say $10k)
Year 0-5: Pay $60,299
Year 0-5: $400k worth of IP @ 5% p.a. growth compounding (average is 7%, let's say 5% to be conservative) = $510,500 value (less $360k loan = $150k equity)
Year 5: Sell for $25k
Cash/equity at end: $175k
Spend during 5 years: $110k
Net position: +$65k
I've always been a believer in only buying depreciating assets in cash, but the above suggests that I might be better off leasing, and investing the cash.
I'm just keeping it nice and simple so I haven't taken into consideration tax benefits (I'm guessing the leasing option would be better for tax?). I also haven't taken into consideration the effect that the car loan repayments would have on serviceability, which is probably the biggest consideration.
Anything else I've missed?
Cheers
I've used the ANZ calculator which is nice and simple, and used their current standard interest rate of 7.63%.
$50k car, 5 year term, the repayment is $1004.99/month to pay off the $50k Principal and $10,299 Interest over the life of the loan (total $60,299). At the end of the 5 year term let's assume the car is worth $25k.
If purchasing:
Year 0: Pay $50k
Year 5: Sell for $25k
Year 0-5: Save $60,299 rather than pay down car loan
Cash/equity at end: $85k
Spend during 5 years: $50k
Net position: +$35k
If leasing:
Year 0: Use $50k as deposit for $400k worth of neutrally geared IPs @ 90% + purchase costs (say $10k)
Year 0-5: Pay $60,299
Year 0-5: $400k worth of IP @ 5% p.a. growth compounding (average is 7%, let's say 5% to be conservative) = $510,500 value (less $360k loan = $150k equity)
Year 5: Sell for $25k
Cash/equity at end: $175k
Spend during 5 years: $110k
Net position: +$65k
I've always been a believer in only buying depreciating assets in cash, but the above suggests that I might be better off leasing, and investing the cash.
I'm just keeping it nice and simple so I haven't taken into consideration tax benefits (I'm guessing the leasing option would be better for tax?). I also haven't taken into consideration the effect that the car loan repayments would have on serviceability, which is probably the biggest consideration.
Anything else I've missed?
Cheers
Mate, Treat yourself dead set you have to at some point
ill have to agree with the mob on this one. Buy 3 year old car, they still look new and have all the flash bits still!
I see your out west, check out pickles auctions! they have all sorts of cars, not just camrys! ... but we did get a camry for 15k when the dealers wanted 22k for the same automobile! Go where the dealers go!!
I see your out west, check out pickles auctions! they have all sorts of cars, not just camrys! ... but we did get a camry for 15k when the dealers wanted 22k for the same automobile! Go where the dealers go!!
And another few issues around "new vs late model 2nd hand"
FYI to the OP you can leased a 2nd hand car. To get the best of both worlds. (access to leasing plus you miss the worst of the depreciation slope)
Step 1: Find late model car of choice selling for much less than new. Buy it. (avoids the rapid loss of capital value)
Step 2: Sell it to the notated lease company for your purchase price (returns your capital).
Step 3: lease it back. (creates the tax advantage)
Outside of a new vs. used car argument / preference, leased car can work for you, especially if novated and inclusive of all running costs and discounts under corporate programmes and you will drive a lot kms.
However remember that even if you own the car not lease, you can deduct portion of the car's cost (interest, depreciation, fuel, service etc.) in tax using eg.logbook method.
Also if you can deduct a lot of costs in tax, you might consider other finance options. E.g. CBA gave me 4.99% interest car loan. Leasing companies' interest rates were much more than that.
However remember that even if you own the car not lease, you can deduct portion of the car's cost (interest, depreciation, fuel, service etc.) in tax using eg.logbook method.
Also if you can deduct a lot of costs in tax, you might consider other finance options. E.g. CBA gave me 4.99% interest car loan. Leasing companies' interest rates were much more than that.
this many guys and no one asked what type of car you are going to buy?
evo 10?
evo 10?
Head to the car auctions and buy a 2/3 year old car, pay cash. Something low km and comfortable spec would be my choice, lots of ex gov cars going cheaply plus ex lease/finance cars where people cant pay the loans anymore
Where simtr? I always see those are the most exxy cars around!
Not sure on Sydney, but in Melbourne http://www.manheim.com.au/
Plenty of ex government/corporate vehicles that are still low km and a few years old. They usually sell for wholesale prices, save a few $k from what you'd buy at a dealers.
Lots of holes in your maths. A car worth 50% of cost after 5 years ...LOL. 5% compound growth in property ? I would hope that the existing equity will still be there and aim for zero. Has property hit its peak and about to flatten / trough ?
Leasing is still a loan. Doesn't matter what you call it. Note that leased assets aren't owned until the final payment is made. Arguably equity at Y5-1day = zero since you pay a residual and acquire the asset at that cost. eg $15,000. All that cashflow for no equity is the general case.
Cars depreciate and consume cashflow. Property (hopefully) appreciates and if carefully considered can be CF neutral or close to it for first few years.
Cars will always lose in a comparison. Simply put - The car will be lucky to be worth $15K after 5 years. A return of -75%. Property at 5% pa growth will be worth more than it cost if its neutrally geared all way through. However expect property will consume cashflow through years also.
PIA software (trial version) would demonstrate this. http://www.somersoft.com.au/software.htm
It's an interesting exercise. It's with basic numbers, and can be tweaked, but it serves the purpose.
I believe the 'buy cars with cash' argument is a furphy. If your cash can be used somewhere else for a better return, then that's what you should do.
How long would it take you to save the cash for a property deposit if you spent it on the car?
Hi Paul,
Thanks for the reply. A few points on your response below though.
Average growth is around 7%, my first 2 IPs increased by 25% in 1 year, my 3rd and 4th have increased by at least 13-16% in less than a year. I don't expect to get the same growth on all properties, but what makes you think 5% is too ambitious and I should work off 0%??
Thanks for the reply. A few points on your response below though.
50% loss over 5 years was based on a Toyota Camry and a BMW 3 Series on Carsales so I don't think I'm that far off. And even if I am, it doesn't matter. It's the same for scenario 1 and 2. (neither of these cars are what I intend on buying, for those that have asked)
Average growth is around 7%, my first 2 IPs increased by 25% in 1 year, my 3rd and 4th have increased by at least 13-16% in less than a year. I don't expect to get the same growth on all properties, but what makes you think 5% is too ambitious and I should work off 0%??
There was no balloon payment on the loan calculator I used. The $60,299 included Principal and Interest so I'm assuming at Y5-1day I would then own the car outright. Am I wrong on this?
