Cheap finance is the fuel to inflation and corporations love dousing those flames and getting their revenue figures higher.
This is nonsense. If you can borrow money for less than you can earn, you should borrow. I know people who, buying a new car, had saved cash to do so. But they got 0% financing. So even sticking that money in a CD made them more cash.
What you mean to say is "if you do not realize that you are paying a lot of money for the use of a new car, not for an asset"
You are right, but using a car loan to do this makes no sense. You can always get a lower interest rate loan against real estate or margin loans against stocks. Show me any real world lender that won't loan you money at cheaper rates against those assets than they will against a car.
Sure, people get 0% loans on cars, but if you think they that doesn't mean they paid more for the car than they could have with cash up front.. well I can't help you.
You are trying to make an economic argument and I don't find it very convincing. But in the real world every time have I seen this happen it is to rationalize overspending.
They certainly don't pay more for the car than they do if they paid with cash up front. The price of the car is negotiated, then financing.
Maybe, if the dealerships didn't offer 0%, they would offer lower prices on cars. And maybe if stores didn't take credit cards they would offer lower prices. But once they decide to do it, there's no reason not to take them up on it.
But they probably wouldn't raise the rates. At 0% APR, they are still making a bet that you will miss a payment and suddenly owe back interest. At interest rates today, not many people have to miss a payment to cover all the others.
I'm sorry you don't find the way the world is working right now to be convincing. But I know people who are ready to pull out their checkbook after negotiating, and then are offered 0% APR. So they took it.
If I can get that for $200/month for a new car for 3 years then hand it back, with just known costs of insurance and gas, that's valuable. I don't care what the cost of the car is, only what the cash flow is.
Sure, I could buy a car for $5k and hope that it's cheaper over the 3 years, hope it doesn't depreciate too much, and after 25 months (plus however many months to pay for the extra maintenance and servicing included in the first car) but I'm taking the extra risk. Maybe I'll come out on top, maybe I won't.
Interest rates have been at record lows for over a decade, but the cost of the basket of goods the typical person buys hasn't changed much.
Now this is partly brexit, partly covid, partly we stopped doing anything for months - I can see people getting a bit of a shock when they realise that everything has gone up (the RPI in the UK is the average cost of a set of items in a basket and this confirms it, massive drop last year and now higher than the trend line shows it should have been: https://www.ons.gov.uk/businessindustryandtrade/retailindust...) - will be interesting to see if this drops down again next year
RPI is not used by anyone as a serious measure of inflation, CPIH is the standard used and it's been really low for donkey's years
No need to waste money on a lease. Just buy a used Toyota at effectively 30-50% the cost of that lease you're getting.
The poster made it clear that he knows there are cars out there in the 50% range of the cost of his lease, but still thinks it's worth leasing. He said he believed the reliability (and presumably warranty) and improved style were worth it.
Which is fine. He's making a reasonable choice.
"hope that it's cheaper over the 3 years, hope it doesn't depreciate too much, and after 25 months (plus however many months to pay for the extra maintenance and servicing included in the first car) but I'm taking the extra risk. Maybe I'll come out on top, maybe I won't."
It definitely will be cheaper over the 3 years. Won't depreciate too much. Really won't have maintenance and servicing needed anymore than the lease. They aren't taking any risk and will come out on top. I know this, because lease financiers already bake all this into the lease for more unreliable cars with a hefty margin for extra profitability.
"a certain level of comfort, reliability, cost, privacy, speed etc."
His point was he knows he is paying more because he has to think less. He's paying for convenience and risk-aversion (and a slightly newer ride). That's fine as long as he recognizes it as an optional luxury expense.
So, that's $7200.
> Sure, I could buy a car for $5k and hope that it's cheaper over the 3 years
There's no hoping, of course it's way cheaper. $5K is less than $7.2K even if you dump the car off a cliff after the 3 years. But you wouldn't, you own it so you can sell it (unlike the lease). A car that you buy for $5K is so far down in the depreciation curve that it doesn't depreciate much anymore, you'll be able to sell it for close to the purchase price. If you sell it for $4K, that's a total cost of $1K for 3 years vs. $7.2K for the lease. No comparison.
On both choices you still have insurance and operating costs on top, both have those. Insurance is bound to be much cheaper on the older cheaper car. In fact you can go liability-only on a $5K car, who cares. But on a lease you're forced to pay full coverage on a new car, far more money.
So if you want to enjoy the luxury of a new car lease, enjoy! But there's no way to justify it on economic terms.
Also unless you get exceptionally unlucky (it can happen but is very rare), you're not spending 2K on maintenance. Even if you do, that's $7K, which is still less than the example lease payments of $7200.
Don't forget the lease payments are just rent, the money is gone forever.
The used car you can sell later and recover most of the cost.
Also, it will not "massively depreciate". How often have you done this? The idea is to buy a car that has already bottomed on its depreciation curve and then sell it a few years later with barely any loss.
If you want affordable transportation that's the way to go. Buy an early 00's Corolla or Civic for $3K-$5K, spend nothing on it, sell it a few years later for nearly the same money.
Last time I had a used non-banger car I had it for 4 years, it cost 16k upfront, I sold it for 3k when it started having engine problems, having spent thousands on it trying to keep it working (electrics were a big problem, but it was when oil started appearing in the radiator that I gave up). did about 50k miles in it.
Too much hassle, stress and money.
My current commuter car I bought it for 4K eight years ago and the only expense is a yearly oil change and tires every few years. Since I don't commute anymore, thinking of selling it and have been getting offers for 5K.
My previous commuter I bought for 6K and sold 15 years later for 3K.
In a fractional reserve system, the commercial bank is allowed to loan out money in this way up to a set limit based on the amount of reserves they hold at the central bank. The interest rate of the central bank is the rate at which the central bank pays out interest on those reserves, not anything to do with the central bank lending money.
This paper sets everything out in detail: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
EDIT: this explanation is the 'traditional' way, before central banks started doing QE. In QE, central banks purchase bonds and other assets, effectively 'lending' money out (the bond issuers will eventually, in theory, pay that money back). Still though, nobody is going to the central bank and borrowing money - the bank is buying assets (using money created from nothing, thereby increasing the money supply).
Leasing companies can then sell their used rental cars at a higher price, which means they only have to finance the depreciation...which reduces the cost of leasing a car.
It's all swings and roundabouts