If driving a prestige car appeals to you, but finding the cash to purchase an expensive car is challenging, it may be sensible to consider leasing a prestige car instead. You are likely to save money by doing this over the term of the lease too.
It is a well-known fact that a new car depreciates substantially the moment that you drive it away from the showroom. It’s value keeps on falling as time goes on so that by the end of three years, the average new car will have a residual value of around 40% of its new price, assuming 10,000 miles per year.
This means that your nice new car will have lost around 60% of its value at an average of 20% per year. And that is only with an annual mileage of 10,000 miles per year.
Most owners drive at least 12,000 miles per year, and business drivers often cover far more miles.
Key Points
- Leasing a prestige car can be more economical than purchasing it outright due to high depreciation rates associated with luxury vehicles.
- New cars lose significant value immediately after purchase, with an average car retaining only 40% of its original value after three years, considering 10,000 miles per year.
- Prestige cars face more substantial monetary losses in depreciation; for instance, a £40,000 car can lose £8,000 per year in value at a 20% depreciation rate.
- Leasing offers benefits like guaranteed residual values, safeguarding against market fluctuations and model updates, as demonstrated by the BMW 5 Series Touring model refresh.
- An example with the Audi A6 Quattro reveals potential savings of £3,623 over three years when leasing rather than purchasing, plus added cash flow benefits for the lessee.
Some Cars Depreciate Faster Than Others
Cars do vary in their rates of depreciation. For example fuel efficient cars hold their value longer as buyers look to minimise their fuel costs during their ownership.
Another factor that can impact on residual values is model refreshes or the launch of substantially improved versions; it is very likely that there will be a new model launched during the three year ownership of a vehicle.
The problem for prestige car owners is that depreciation rate percentages mean larger monetary losses when compared to less expensive models.
If a car costing £40,000 depreciates by 20% a year, it’s value falls by £8,000 per year, whereas a car costing £15,000 suffers a loss in value of £3,000 per year.
Buyers of prestige cars must face high depreciation costs, and are advised to look for ways to reduce their cost of ownership.
Car Leasing Can Reduce Cost of Ownership
Leasing a prestige car, can be a viable way to reducing the cost of owning a car of this nature.
One of the key benefits is that the leasing funder guarantees the residual value of the vehicle at the end of the contract.
This compares favourably to purchasing the car outright where the owner is susceptible to changes in market conditions, or the launch of upgraded models during their ownership.
The recent launch of the new BWM 5 Series Touring is a good example of a model refresh that purchasers of the existing range probably hadn’t anticipated, yet the depreciation of their cars is likely to suffer as a result.
Those who has leased a BMW 5 series Touring over the last few years would have been offered a guaranteed residual value that is unaffected by model refreshes and market dynamics.
Leasing a Prestige Car vs Purchasing Example
In order to see how car leasing stacks up against the costs of purchase, I noticed that the Daily Telegraph are listing the Audi A6 Quattro in their top twenty cars with the lowest rates of depreciation.
According to them, this car maintains 55.6% of its value after three years at 10,000 miles per annum.
This prestige Audi A6 3.0 TDI 218 Quattro had an on the road price of £47,425 in 2017.
After three years the owner loses 44.4% of its value, according to the Daily Telegraph – £21,079
In May 2017, when this article was published, If an Audi A6 Allroad car was leased from Vantage Leasing, it cost £415.82 (excl VAT) per month over three years at 10,000 miles per annum. A deposit of six months rental payments was also payable (£2494), so the total cost for this leasing solution was £17,456.
It is clear to see that there are savings of £3,623 over three years by leasing this prestige car rather than buying it outright.
There are also cash flow advantages as the purchaser does not have to fund the capital purchase, but can amortise the costs on a monthly basis over the length of the contract.