Buy or lease a car for driving tuition

This was a topic recently brought up by one of our fellow driving instructors in Leeds on our private Facebook group for the mighty driveJohnson’s instructors.

Which option is best – buy or lease a driving tuition car?

You will go on many forums on Facebook or experience general chit chat down the test centre, you may have to bite your tongue with some of the narrow-minded muggy answers some instructors come out with. What you have to remember is that everyone is different. Everyone has different requirements so there are instances where leasing will suit certain instructors and buying will suit others.

I hope to provide you with a list of pros and cons to both leasing and buying a car for driving tuition.

How many hours are you going to work a week?

I think buying and owning your car is a must if you only want to work around 15-25 hours a week.

If you only work 15 hours a week and you charge an average lesson price of £27 an hour, your gross income will be £405.

Take away the following:

Fuel: £60
Insurance: £15-20 a week
Franchise: £40-60 a week (based on local/medium size companies out there)
Miscellaneous such as repairs, maintenance, road tax etc.: £25
Residual loss on car each week, based on a car roughly 2 years old costing £6000: £20 a week

Your net income based on owning your own car would be approximately £220 a week.

Compare this to leasing a car:

Fuel: £60
Insurance: £15-20 a week
Franchise: £40-60 a week (based on local/medium size companies out there)
Miscellaneous such as repairs, maintenance, road tax etc.: £10
Cost to lease car, based on 20,000 miles a year: £70

Your net income based on you leasing a car would be approximately
£185 a week.

These are approximate/guideline figures.

Working 35 hours a week onwards

If you want to work 40-50 hours a week then I would lease the cheapest options available at the time. Usually a Peugeot, Citroen or Toyota.

The problem with leasing happens when you want something a bit naughty (£18,000+ cars) like a Golf, Audi, BMW etc.

In this instance, I would buy second hand. A car that is 2 years old, so it has lost its major money in the first 2 years.

As you work more hours using a lease car, your average net hourly rate will increase. If you are working only 15 hours a week, using the figures above brings in a net hourly profit of £12.33. However, do the maths on a lease car for someone working 40 hours a week and you should work out that the hourly net rate based on £27 an hour is more like £19-£20 an hour. That is more favourable.

You can lease many cars on 40,000-mile contract for roughly £330 a month.
The only other thing that will go up will be your fuel. But everything else remains the same such as insurance, tax and franchise as maintenance isn’t your problem neither is the wear and tear on car.

Owning your own vehicle can be more cost effective IF you know what you’re doing!

Here are some tips:

  • Buying without emotion. Think of its re-sell value in 2 years’ time, with 80,000 on the clock. Which cars have the best residual value etc.?
  • Do you have an eye for buying a bargain? Can you tell a clocked car (1 in 5 now) from a genuine mileage car?
  • Don’t buy a car too old as it will most likely have more maintenance and repair problems.
  • Ideally, you need to be fairly clued up with mechanics. I’m no guru but when I was teaching I could usually tell when my clutch needing replacing or gearbox didn’t feel quite right, usually after 100,000 miles and at this point I would sell the car probably 5,000-10,000 miles before the problem occurred. It’s very hard to sell a car for proper money if the clutch or gear box has already gone.
  • Look after your car with a steering wheel cover and seat covers etc.
  • Check the service history when you buy the car from a trader/private seller. Call up Toyota or Vauxhall, for example, and ask for the service department, give them the registration of the car you are thinking of buying and check the history. They may say to you it had brake pads done at 30,000 miles and you’re looking at the mileage and it says 20,000. You know the car has been clocked and you are dealing with a potential rat!
  • Are you buying the car in cash or borrowing the money? If you can get a personal loan of 3% interest or less than that is good. If you are paying 7% plus, then I would refer to leasing again. Ultimately, buying the car with no finance is the best way to save the most money.
  • GAP insurance. If you are borrowing the money, how much do you stand to repay? For example, if you are borrowing £6000 but the total repayments over 3 years is £7500, then you may want to consider gap insurance. If your car is in an accident (written off), there is a high chance you may receive the market value of the car which leaves you with a financial shortfall of say £1000 to repay the finance off the car.
  • If you’re hopeless with bartering, don’t know much about cars or mechanics etc., then refer to leasing.
  • Put money aside for repairs. There is a high chance if you buy a car 2 years old with 20,000 miles on the clock you should be safe from problems for 1.5-2 years. If you put £20 away a week for your car maintenance and £20 away a week for a deposit on a new car, in 2-3 years time you will be in a good place with no financial surprises you can’t afford. You may even find there’s some money left over from the maintenance pot when you go to sell and buy a new car. £20 a week for 3 years is £3,120. This would be a big supplement towards the depreciation on your car you are selling.

Other points and tips about owning your own vehicle:

  • Owning your own vehicle would require you to have a plan. Drive the car into the ground, have it for 4-5 years, doing 150,000-200,000 miles, then sell dirt cheap OR have it for 2 years and sell before (what I call) the honeymoon period runs out on the car – when problems start to creep in, usually over 80,000 miles. I’ve had a VW Golf and Seat Leon (both the same) and I must say I had a fairly problem free experience driving in both up to 140,000 miles. In my opinion, I don’t think you would get that in a Corsa or Fiesta.
  • How good is your car sympathy? Letting the pupils smash the gear box, change gear with the clutch up, dry steer, yank the handbrake up, over rev all the time etc. are all fine with a lease car, but when it’s your own and you intend to have it for 100,000+ miles, you will see problems happening earlier than they should. The clutch going at 40,000 miles rather than 100,000 as an example. When it’s your own car, you do need to be alert and try to proactively prevent the above learner habits rather than retrospectively dealing with them.

The verdict

It’s courses for horses. If you know what you are doing when it comes to buying/selling cars, know when to get out of the car and don’t mind more leg work then I would opt for buying if you are fairly cash rich.

If your knowledge of buying and selling cars is low, you don’t like any risk and you are not cash rich then I would lease.

I normally recommend to most ADIs/PDIs becoming an instructor who join us on our driving school franchise to lease the cheapest deal out there at the time for 6-12 months (I’m a firm believer in keeping overheads low). Once they have become established with us, they can see the continuous work coming in and they become a bit more cash rich, then consider buying if they do long hours and don’t mind a bit of leg work and a small risk.

If you don’t like the leg work such as arranging dual controls, sorting out your own servicing, balancing act of selling one car and buying another so you’re not off the road for too long etc. then stick to leasing.

All the above are just my humble opinion and of course there may be a few more pros and cons.

Good luck in whichever avenue you decide to take, but remember the best businesses usually apply these two key points:

  1. Keep overheads low – don’t buy or lease a car that is £600 repayments a month and don’t sign up to a franchise where it’s £100s a week or £1000 a month.
  2. Make sure you have sales (phone ringing/enquiries). Choose a franchise that is good for the work or be prepared to put some effort and money into your own marketing!

If you can tick overheads low and sales/enquiries high then you will financially successful as a driving instructor.

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