JammyDodger
If you’re buying a car and keeping it until it’s basically scrap then I think buying outright (either new or almost new) is probably still the most cost effective.
However if you add up all the costs of longer term ownership (MOT, tax, servicing, repairs) over a period of say 1-5 years and factor in depreciation, buying new is almost always cheaper to lease or finance if you want a new car every few years. I think Warren Buffet or someone who knows about money said ‘If it appreciates (like a house), buy, if it depreciates (like a car), lease’.
The other benefit is that you know exactly what your car will cost you for x number of months/years. Obviously if your car doesn’t ever have problems this isn’t an issue, but always having a car under warranty with a service plan removes the risk of expected repair bills.
I heard a story once of a farmer, real old school chap who bought a brand new version of the same car every four years. The salesman tried his best to explain that he would’ve saved money by financing it, but he refused to borrow any money at all so would always pay cash, and lose a load in depreciation the minute he drove out the door.
If interest rates are good, especially using tracking funds, you can invest the difference a new car would cost outright and finance it and over the term could be slightly better off. As with everything though it’s all a lot of gambling.
In reality though, like with other luxuries, financing offers those who wouldn’t otherwise be able to afford something the chance to show off their purchase and look wealthy by loading themselves up with debt. Few people probably have £50k in cash to drop on a Mercedes but are happy to spend the 750 a month to finance once. I think it’s reflective of modern culture where we buy first, pay later as opposed to saving like we used to.