Car Leasing Blog

The best way of answering this one is as follows:

The maintenance contract will usually cover anything that warranty and insurance dont, which can be catagorised into the following

• Routine Maintenance and Servicing
• Reasonable Replacement of Tyres due to wear and tear

And sometimes a form of fleet managment system. The common misconception among leasee’s is that the contract will continue to cover replacement tyres for punctures,etc. This is not the case. The maintenance company will normally allow for replacement tyres for every 15,000 miles or so throughout the contract.

This is quite a difficult question to answer, nominally because there are different contracts available to companies in the uk, so for this article we will deal just with the most popular company car leasing option - Contract Hire

Contract Hire is essentially a hire contract similar to that you would get from any rental company, it just has a longer fixed term and fixed mileage.

First of all lets deal with the term element. The term can range from 3 months upto 5 years, but realisticly, the best deals are to be had over a 2 or 3 year period.

Mileage - always a sticking point for most businesses so let me answer the main queries first:

No you are not limited to 10,000 miles per annum. You choose the mileage up front (anything upto 70,000 miles per year) and then the rental is calculated accordingly.

No you will not pay £1 per mile excess mileage. And if you do - dont bloody sign the contract!! The avergae excess mileage rate is in the region of £0.04p - £0.12p per mile.

Off sheet accounting, is one of the prominent reasons why companies would opt for Contract Hire. Dont worry, you dont need to be an accountant to understand this, and I will keep it simple.

If you purchase an asset (such as a desk or car or building), the value of that asset is placed on the balance sheet of a company and depreciated annually by your acountant. As such you pay tax on this value placed. Not always good for alot of people. The benefit would be that your balance sheet looks better.

When you lease an asset, there is no entry in the balance sheet (because you dont own it) so the payment (or 90% of it in the case of Contract Hire) is the effectivley ‘lost’ in the profit and loss account (meaning no tax on the payment)

So basically, for cars you can ‘write off’ 90% of the payment against each monthly profit and loss account and for vans and commercial vehicles its 100%

VAT - Another handy one. Cars first:

50% of the VAT payable on a Contract Hire agreement can be reclaimed, positivley affecting cashflow (as you are only paying VAT on the payment instead of the whole vehicle).

On the maintenance element of the contract, 100% of the VAT can be reclaimed. Which is nice

Next vans and commercial vehicles.

100% of the VAT can be reclaimed on the van or commercial, and 100% on the maintenance as such.

Road Fund Licence - Is covered in a contract hire agreement throughout, you dont have to worry.

Initial Capital Outlay - Is usually restricted to the equivalent of 3 monthly payments, but in some cases (and multiple orders) can be reduced to monthly in advance.

There is my bried overview of contract hire for businesses, please,please,please do not hesitate to ask if you have any questions. I am more than willing to help

Take care for now.
 

Lets start from the beginning - the two conventional ways of purchasing or driving a vehicle are as follows:

1. Buy it cash (or remortgage,loan,etc)

2. Get it on finance (almost always Hire Purchase)

These have been the most popular ways of aquiring a new vehicle conventionally, and have worked for some time. But they are out of date, and this article will reveal the reasons why.

Who is this article aimed at?

Anyone who drives a car personally, be it through car allowance for work or for picking up the kids and shopping. I have decided to give two forms of information in this article, the laymans view and the mathematical view.

Firstly though, let me say this - the second you mention leasing to most people (82% of the population actually) they reply “I like to know that I own it”

Wrong!

Most consumer vehicles are purchased using HP (Hire Purchase) in this country, and as such you dont own it until you have made payment of the admin fee with the last payment! Check your documentation, and tell me I am wrong.

The consumer rotation for vehicles in the UK (this is the average amount of time a consumer keeps a car for before selling or part exchanging the vehicle) is 27 months. So on the most part, no body owns their vehicle (when it is a new or newer car).

Buying A New Car With Cash

Ok, so this also entails using a credit card or other type of loan where you would just walk into a dealership and write a cheque or hand over cash.

The biggest problem with buying with cash (we’ll call it BWC from now to save hand cramp) is its dead money. John Paul Getty (the richest man ever recorded to you and me(yes it was more than MicroGates)) once said “If it appreciates buy it, if it depreciates lease it”. What this mean is, if you have got £15k lying around to throw at a new car, it would be better off somewhere earning money (house,kitchen even the dreaded ISA) than sat on the drive getting wet,rusty,scratched and slagged off by any motoring journalist that didnt get one for free.

Now you wouldnt buy a new kitchen and flat screen tv to leave it outside in the rain would you?

New cars (in the 27 month period we keep them) always (with the possible exception of Veyron’s and such like) depreciate like bricks. Normally, your average family saloon is worth about 25% of its new value after 3 years of use and kids spilling KFC in the back.

So, in short - it may well feel really good to go into a dealership and weigh in 20 grand for the new motor (and I know, have done it plenty of times in the past) and you may well feel that the salesman holds you in great regard for doing so, believe me its not such a great idea and the salesman isnt thinking about your 20 grand, he’s thinking about the next pair of Next shoes he’s gonna buy with the commision you are about to earn him.

Hire Purchase

Done incorrectly, quite possibly the most expensive way of having a new vehicle. You pay for the lot. Car, Depreciation, Sales Commision, Interest,etc,etc

Quite alot has been investigated about the way cars are purchased this way, even to the point whereby APR (A load of tat to you and me) has pretty much been outlawed and replaced with AER (A lesser load of tat to you and me). I have seen APR’s which equate to massive base interest rates that would litterally scare the life out of you if you actually knew what the APR actually mean in terms of £’s.

If you are going to HP, read this section very carefully - and its not difficult not to get stung - Ask for the base interest rate!!!

They may be reluctant to give you the base rate, but insist - this is your money. The base interest rate will tell you, per year how much money (as a percentage) you will pay to the finance company for the facility of borrowing the money.

Here come the examples:

Example 1:

£10,000 loan

5% Base rate of interest

4 year loan

The calculation is 5% of the loan (£500) multiplied by the term (4 years) giving the total amount you will pay to borrow the money (£2,000)

So you can see you are paying £500 per annum for the facility, giving a total interest paid back of £2,000 (or 20% to the ever protective finance boys).

Once you have the base rate, make your descision weather you are going to do the deal or not.

Ok, So Tell Me Why I Should Lease

No, shant

I spend most of my working life telling salesmen to stop pushing the product and start pushing the facts, so I’m not going to tell you why you should, I am just going to tell you what the difference is and why I think its a better product.

First of all, the fundamental reasons why its a good idea.

1. Fixed monthly cost - If you bought the car with a credit card, the cost goes up and up. If you buy a second hand car, the inevitable maintenance costs and out of warranty repairs will have you crying into the credit card statement in no time. With a personal lease, you will pay a fixed monthly cost throughout and - if you’re sensible - get rid of the thing before it runs out of warranty.

2. Not Liable For Residual Value - On a lease, the residual value is fixed, so for example (yes i know its the second example) when a well known TV journalist decides to run your car down (because he or she didnt get a free one) just after you bought it, and the resale value hits the floor, the finance company take that strain - not your wallet.

3. Purchase Aggregation - This one is a little more complex, but everything is cheaper on bulk, especially cars. A leasing company will buy 1,000s of cars in one sitting, realising a massive discount which, in most cases gets passed on to you. These sort of discounts you will never get with your Tesco’s bag full of cash, no matter how many friends or family you have working at the plant.

4. Overhead reduction - Leasing companies (on the most part) dont have showrooms full of cars,lights and lazy salesmen, they normally have offices with computers and administrators. Carefull Though, there are a few that are run out of bedrooms and home offices - you will not get the support you need!

Basically with personal leasing, you only pay for the bit you are using, so when you get the idea out of your head that its not yours (and believe me, its nothing to boast about - a bit like boasting “May house value went down 20% last year - yey!”) it actually becomes a really viable option.

How do I know? because the personal leasing sector is growing. Massivley. Try 18% per annum for the last 7 years, and its picking up speed.

Any questions?? Crack on and ask them. I check this thing all the time. And if you wouldnt mind linking to this article, please do.

Regardless of whether you are a business or an individual looking for a new car there are a many varied and cost effective ways of financing the vehicle that will be able to meet your needs…..below are some simple explanations of some of the more popular options. …..Contract HireContract Hire is the leasing of a vehicle, normally to a vat registered business or company, for a set time and mileage at a fixed monthly rental. The monthly rental is determined by the cost of the vehicle, the period and mileage covered as well as the resultant depreciation. Maintenance packages are often included within Contract Hire agreements, but are not obligatory. …..Sale and LeasebackSale & leaseback can be used when your company already owns its own vehicles. Your fleet of vehicles could be purchased at an agreed realistic market value and then leased back to you through the funding method of your choice. This method removes any residual value risk for your company and would enable a cash injection into your business thus increasing your working capital. …..Outright Purchase Price CheckFor many people the concept of buying a car outright is daunting not least because the future value of the car is so difficult to quantify. The added complication of maintaining the car and the costs associated with this may make it a less attractive option. However if you are in the position of having cash to purchase your chosen vehicle outright and feel comfortable with the concept of servicing, taxing and disposing of it then shopping around for the best deal is important. Make sure you barter hard as somewhere a dealership will want to sell a car to hit its ‘target’ and will be willing to sacrifice profitability. ….Personal Contract Hire Personal Contract Hire, as its name suggests, is essentially the same as Contract Hire but for private individuals. If you want fixed cost motoring, or have opted out of a company car scheme then Personal Contract Hire could provide you with hassle free motoring without the residual value risks associated with traditional ownership.VAT is built into the monthly payments, but is not reclaimable by private individuals. Maintenance packages are usually available so that you don’t get any nasty surprises. ….Hire PurchaseHire Purchase is the traditional method of financing a vehicle with the vehicle becoming the property of the lessee at the end of the period. The monthly payment is determined by the amount of deposit paid, the period of the contract and the sale price of the vehicle. ….Personal Contract Purchase
Personal Contract Purchase (PCP) is a method of funding where an individual leases a vehicle for a set period at a fixed monthly charge. At the end of the contract, there is an optional balloon payment which the individual can pay to buy the vehicle otherwise they can choose to return the vehicle with nothing further to pay. The monthly charge is governed by the initial cost of the vehicle, the mileage covered, the period of the agreement and the estimated value of the vehicle at the end of the contract. In addition, features ranging from basic servicing to total vehicle management packages can be included if required. PCP being an alternative to Hire Purchase, the traditional method of financing, is also covered by the protections as set out in the consumer credit act.

When it comes time to purchase a car, many people are faced with the decision of whether to buy a car or to lease it. There are benefits of leasing cars that should be carefully examined before making a final decision. Whether the car is for business or personal use, there are several benefits of leasing cars. Aside from the benefits of leasing cars, though, the disadvantages should also be examined to see if another option for buying a vehicle would be in the best interest of the buyer. Choosing the finance option that best suits the buyer and will make the most sense financially will save a lot of money in the long run and the buyer will be sure to be pleased with the choice.

One of the benefits of leasing cars is the ability to make a lower down payment or none at all. Because the vehicle will be traded in at the end of the term and there is no outright ownership of the vehicle, many financial institutions require low or no down payment to get into the lease. The affordable monthly payments are another of the benefits of leasing cars. Similarly to a car loan, a lease will require monthly payments to be made for the continued use of the vehicle. These can be affordable and fit well into most people’s monthly budget. Because the benefits of leasing cars are so that there is an opportunity to trade the vehicle in after the term, many people are able to set their budget accordingly yet still be in a late model car that is in good condition.

For people who wish to trade in their vehicle every two to three years, the benefits of leasing cars are evident. You can get into a two to three year lease term and at the end of the lease, simply trade the car in for a newer model. The benefits of leasing cars are that you can keep your monthly payment fairly similar throughout the course of the new lease as well but you will have a new car at the end of two or three years. People who like to have a vehicle that is fairly new as a status symbol or who do not want to deal with the hassle of maintenance that comes with older cars may find leasing a better option than a loan. The benefits of leasing cars will be proven when you experience the low hassle of always having a new car.

The benefits of leasing cars are not for everyone, though. Although benefits of leasing cars are many, at the end of the term, even after you have paid thousands of dollars over the course of several years, there will never be a completely owned vehicle. The benefits of leasing cars are sometimes not worth not having the paid off asset for some people. For some, the benefits of leasing cars do not outweigh the idea that their payments will cease after a time and they will have a completely paid for vehicle with only routine maintenance costs to attend to.