Outright Purchase is simply getting vehicles by purchase direct from the supplier without using finance.

The purchaser is then free to run the vehicle over any replacement cycle (or 'term') and sell the vehicle at any time.

Outright purchase avoids direct finance charges, but ties up cash reserves/savings ('capital') as the buyer will have paid the full purchase price of the vehicle around the time of taking delivery.

This results in a loss of use of capital to the individual and this loss of use has a notional cost.

For example, the money now tied up in the vehicle could have remained in savings or have been put to another use, so the loss of use of the money has what is known as an 'opportunity cost' - the cost of the lost opportunity to use the money elsewhere.

You can read more about the opportunity cost of money and how to calculate this by following this link.

Advantages of Outright Purchase

Because the purchaser takes ownership of the vehicle the purchaser can profit from prudent management of the vehicle, such as achieving a better resale price than market value through proper vehicle care, maintenance and management over its life.

Vehicles can be sold at any time (e.g. when a driver's personal circumstances change) without a specific financial penalty (leasing companies usually charge an early termination fee for disposing of leased/hired vehicles before the full term), though the depreciation cost is typically proportionately higher when a vehicle is sold in the early years after purchase from new.

Disadvantages of Outright Purchase

The purchaser is exposed to fluctuations in residual values and maintenance costs, in particular if used vehicle prices drop.

Money is tied up in the value of the car and the purchaser can't get any of this back without either selling the car or pledging it as security for a loan.

Lease or Buy?

To see the cost impact of leasing or buying your next new car click here.