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HBOS Lloyds TSB Merger - How it will affect you.

posted on Sep 18 2008 by Jon Bardill

First we had the denial by our Labour Government that the country was not in recession it was simply a down turn in business, then we had the Credit Crunch and now we have a banking industry meltdown. The latest victim of this global epedemic is HBOS Halifax Bank of Scotland being taken over by Lloyds TSB. Whats this got to do with me you ask Well alot actually if you want to replace your current vehicle with a new one. With so much unknown about the financial market next week, next month and next year who on earth would want to splash out thousands of pounds or even tens of thousands of pounds of their hard earnt cash on a new car. Exactly, you want to hoard it away in a tin can under the bed nice and safely and let some one else take the risks involved with motoring costs right!!!

Jon Bardill MD at comments "Car Leasing or Contract Hire as we know it in the Industry has for many years commonly been associated with something Businesses do and private individuals haven't really had much of a look in. Well at we have seen a large and rapid growth to such a degree you private individuals are now leasing more cars than businesses, something that's been common across the lake in the good old USA for the last decade". So whats it all about Well lets start with ownership, going to a new dealer, car supermarket, buying online or second hand from a garage of some description. By far the greatest benefit of buying a car is that you may actually own it one day. Implied in this benefit is that you'll one day be free of car payments. The car is yours to sell at any time and you are not locked into any type of fixed ownership period.

The Drawbacks

The most obvious downside of owning versus leasing is the monthly payment, which is usually higher on a purchased car. Additionally, the dealers usually require a reasonable down payment / deposit , so the initial out-of-pocket cost is higher when buying a car. Presumably, as you pay your car loan, you have the ability to build equity in the vehicle. Unfortunately, however, this is not always the case. When you purchase a car, your payments reflect the whole cost of the car, usually amortized over a four- to six-year period. But depreciation can take a nasty toll on the value of your car, especially in the first couple of years, and can often be as much a 50% loss!

As a result, buyers who put down modest down payments can end up financing a considerable portion of the car and even find themselves in an "upside-down situation", in which the car comes to be worth less than what the buyer stills owes on it at a given time. Like the monthly payments of a mortgage, monthly car payments are divided between paying principal and interest, and the amounts dedicated to each vary from payment to payment. In the first years in which you pay back your car loan, the majority of each payment goes toward interest rather than principal. But in the first couple years after being purchased, most new vehicles depreciate 20-40%. The loss in equity is a double whammy: your car depreciates dramatically, and because the monthly payments you've been making have mostly gone toward interest rather than the principal, you are left with very little equity in the car. OUCH!!!


Perhaps the greatest benefit of leasing a car is the lower out-of-pocket costs when acquiring and maintaining the car. Leases requires an initial rental equivalent to 3 months rental followed by 11, 23 or 35 monthly payments. Additionally, monthly payments are much lower, and you get the pleasure of owning a new car every few years. With a lease, you are essentially renting the car for a fixed number of months (typically 12/ 24/ 36 or 48 months). Therefore, you pay only for the use (depreciation) of the car for that period, and you are not forced to absorb the full depreciation cost of the vehicle.

Leasing a car will never put you in an upside-down position. The majority of leases include the road fund licence for the duration, the car is simply dropped of to your door any where within the UK and collected at the end of the agreement, you can opt for full maintenance and even get cheap insurance too! Its really as simple as that. If you have ever rented a car for a day or a few weeks then you have already experienced a form of leasing, this type of leasing is principally the same but for a longer period of time. For further details please speak to the Car Leasing Team now on 01273 789 900.