Car Leasing Blog

Over the last few years, personal car leasing has become more and more prominent in the UK.

 Mainly the reasons are for convenience. Joe bloggs no longer wants to worry about his car losings it value on the drive - or a poor review in a magazine dropping the future value of his car.

Personally leased vehicles are now available from most car dealerships and even over the Internet.

Another reason is price. With the bulk buying power of car leasing companies now, and the distribution they have with the various car leasing brokerage networks, the price monthly for leasing a car has dropped dramatically.

I have seen family saloons for less that 150 pounds per month,  and shopping style runabouts from less than a hundred.

Now that’s not a bad deal for a brand new car, once every two or three years.

A huge contributor in the drive toward personal leasing has been cash for car schemes operated by employers. Conventionally, an employee might be entitled to a company car - but now companies are moving more and more toward giving a cash car allowance and letting the employee find the car (usually with some restrictions). This has a huge effect on the BIK and car tax an employee is likely to contribute making personal leasing a much more cost effective option to a company car.

Soon, I will produce a full breakdown with a comparison of costs for a typical company car user compared to taking the vehicle on a personal lease and post it here.

If you go for a PCP contract, there is a fantastic way to benefit financially at the end of the contract, I will go through it step by step:

With a PCP Lease, there is an optional final payment at the end of the term, which is fixed by the finance company.

One of the benefits of this is that you can hand the car back to the finance company, another is that you can buy the car, then sell it.

When they set the MGEV (Final payment), they usually use around 85% of the predicted future value of the car (to cover their back). This means that if you play your cards right, you could make this 15% yourself (or even put it toward a new vehicle)

I always try to ring PCP clients before the end of the term to make an assesment of the value of their vehicle vs the sale price of the vehicle. I have even known clients take their car to the local dealership and get £300 - £1000 more than the final payment figure on the contract.

Food for thought isnt it?

Ok, so you have probably arrived here because you are thinking of or are in the process of leasing a car personally.

Before you do, please take the time to read through these top 10 tips.

1. Do it through a reputable company. This doesnt mean it has to be a dealership or bank, just make sure the voice on the end of the phone has an office, Consumer Credit Licence (CCL) and a Data Protection licence. Without these, your personal data could very easily be compromised and, with identity fraud at its highest, this could cost you a lot.

2. Make sure you choose the right contract. There are a few different types of personal leasing contract available on the market. Make sure you understand the implications of the contract you are undertaking. Get out clauses, early termination fees, is the future value guaranteed,etc.

3. Make sure the company you are dealing with take all the approriate anti fraud measures prior to issuing a contract. We need to battle ID fraud, and you sending proposals without proof of your own ID means that anyone could.

4. Check the returns policy for the vehicle. When it goes back, you need to make sure you are covered for any dents,scratches,etc by the BVRLA fair wear and tear policy.

5. Check, and i mean Check the vehicle order when you send it back. I have lost count of the number of manuals which turn up as autos, 3 doors which turn up as 5 doors,etc.

6. Sign for it yourself. And please,please,please do not sign for it if it is not perfect. Scratches will not get sorted later, despite what the delivery driver says. Write it down on the delivery note - you have got some come back.

7. Make sure you are insured - Most insurance companies will insure personally leased cars as a matter of course, but they need to know. Dont give them an excuse not to pay.

8. Make sure the personal leasing company you are dealing with has a customer service department. If anything goes wrong, salesmen arent too interested in getting it fixed after they have been paid commision.

9. Organise the return of your vehicle well in advance. If the contract goes over its return date, at best you will be charged. At worst you will pay for the remainder of the vehicle (I have seen this happen a number of times and cost consumers thousands).

10. Try to get any repairs (dents, scratches,etc) fixed at your local body shop prior to return. You will get charged for them otherwise and there is no way of getting the vehicle back afterwards to get it done.

 If you try to follow these tips of personal leasing, you shouldnt go far wrong, but any problems, give me a shout

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.

Over recent months, Audi have become more and more agressive with their leasing products, and yet this would seem a strange move, for a multitude of reasons.

Audi have almost always maintained supply, just less than demand. For example with an Audi TT, everyone has to go on the waiting list. To this effect, there is a certain amount of prestige available from waiting for a car.

Keeping the vehicles always in demand has one major influence on the leasing costs - While the vehicles are in demand, the residual value of said vehicle remains with strength.

Once a couple of years have passed, with the RV’s (residual values) holding strong, it is now time to start pushing the vehicles heavily into the leasing market (because you only pay for the difference between invoice cost and residual value).

The added bonus to Audi has been that more and more, car manufacturers are moving toward supply on demand, and not stock piling. This brings everybody else inline with their delivery timescales, so if you want a BMW 1 series instead, you will still have to wait for it now.

The same applies to Golfs,Leons and alike.

Provided car manufacturers continue to stretch delivery schedules for vehicles, removing the option for the customer to stroll into a dealership and pickup an alternative, Audi will continue to flourish in the personal and business leasing world. I have even seen prices for A3 Hatchbacks at less than £200 per month!!!

 At least this article give an insight as to why.