There are numerous different options when it comes to leasing and so it can be extremely difficult choosing. Some specialist companies offer professional help with specialist advisors to help you along the way.
A contract hire of a vehicle typically involves an initial purchase fee (say £1,000 excluding VAT) and then a monthly payment – in much the same way as a loan to purchase a vehicle might do. However, quite often there’s a big difference in terms of how much you’ll pay every month – leasing typically tends to be cheaper than purchase.
- So what do you need to take into account if you decide to go down the route of vehicle leasing?
- How long do you need the vehicle for?
- What is its purpose?
- How much can you afford per month?
- Are you a business providing a vehicle in kind to an employee?
- Which supplier would you use?
It can certainly seem daunting at first as there is a huge choice.
Look some key terms and what it could mean for you to lease rather than purchase.
Key terms in vehicle leasing
- Term: The length of time which the vehicle is leased to you
- Processing fee: A fee that some service providers charge for the initial transaction of leasing the vehicle to you
- Delivery: Whether delivery is included in the initial payment
- Initial payment: The cost you must initially pay in order to lease the vehicle – think of it as a ‘deposit’
- Maintenance: Some vehicle leases actually come with extremely competitive maintenance schedules built in to the contract. This means any standard work (services etc) may well be covered and could be carried out for free or at a much reduced cost
- Warranty: Does what it says on the tin. If this option is a ‘yes’ then a warranty comes with the vehicle. What this covers is completely dependent however on the provider and can vary
- Mileage: When you lease a vehicle, it is normally provided based on an estimated annual mileage. Driving more than this naturally reduces the value of the vehicle and so a contract hire will have a cost associated with incurring more than the allowed ‘miles per annum’. This could be, for example, 7p per mile over say a 10,000 miles per year contract
- Road tax: As mentioned in the section above, contract hire can lead to lower monthly payments. This may allow you to have something pristine, and potentially, more powerful on your drive. This part of the contract tells you whether annual road tax is covered in the contract
- Breakdown cover: Once again, self explanatory. The type of breakdown cover included in the contract and how exhaustive that coverage is will completely depend on the supplier
- VAT: Check if this included or excluded when completing any kind of lease agreement
- End of contract charges: If a vehicle is returned once your rental/lease agreement is concluded and it is in a poorer state of repair than expected, you could well incur an ‘end of contract charge’. This is levied by the leasing company to cover the loss of value the vehicle will have suffered
- Balloon payment: A large lump sum that is made at the end of a car loan agreement in order to purchase the vehicle. Frequently associated with loans of lower monthly cost but the balloon payment offsets this and so costs considerably more. Also associated with the term ‘minimum guaranteed future value’ – the value that the car is guaranteed to be worth at the end of the term of the lease
What types of options are available?
PCP is one option. This stands for Personal Contract Purchase and is a classic form of longer term lease. As described above, the vehicle is leased to you for a standard ‘term’, and at the end of this term you can choose to either give the vehicle back to the lease company, or you can pay the final balloon figure and keep the car. This is good if you have A sudden cash windfall or other means of paying a larger final settlement figure, whilst keeping monthly repayments low.
Hire purchase is a second option for a ‘lease’ and is probably the most common form of buying a vehicle. Under a hire purchase agreement, you only own the car after the majority of credit has been paid. Many agreements under hire purchase will allow you to give the car back after 50% payment without penalty and you’ll owe nothing else.
Personal lease is another way to ‘rent’ a vehicle, and tends to include warranty, maintenance etc. It tends to be the most fully featured of all leases, but that’s because it is extremely unlikely to have a clause to allow you to purchase the car. It frees you from worry but you’ll never be the owner of the vehicle. Under a personal lease you will almost certainly be charged a ‘per mile’ excess if you go above the annual limit as described in the key terms.
Who can I lease a vehicle from?
Vehicle leasing agreements are now available from an ever wider range of sources, including (but not limited to) dealerships directly, finance companies, middle men and many more. As with everything else in life, the only way to ensure that you’re getting exactly what you want is to look at vehicle and finance package to see what it includes (or rather doesn’t include) and that it has every option that you’re after.
Can I buy the car at the end of the agreement?
This is entirely dependent on the leasing agreement that you have in place on the vehicle. Some will allow you to do so and others will not, as per the descriptions above. The great thing with a lease is, after all, that you can hand the car back and then get the very latest model on your drive.
Useful links
HM Revenue & Customs – company car and fuel benefit calculator
MoneySupermarket.com – car leasing and purchase plans suppliers
BVRLA – the British Vehicle Rental and Leasing Association
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