Lease Vs Buy, Car Leasing Explained

Both Business and Personal Car leasing have gained a lot of popularity in the UK.One of four cars on the road have been leased and not out rightly purchased.

There are a lot of negative opinions out there about car leasing most of which are false, just like everything else there are advantages and disadvantages. One of the main disadvantages which people seem to always talk about is the monthly payment. Monthly payment should not be seen as a disadvantage as there are a lot of people out there who cannot afford to out rightly pay for their car of choice, car leasing is one of the few finance options that make it possible to afford a vehicle and take it home immediately.
Car hire is another option which is often mixed up with car leasing. With either car hire or car leasing the leaser does not initially own the car, the major difference between them is that car leasing contracts are significantly longer than car hire contracts. Car leasing contracts usually cover a course of twelve, twenty-four, or thirty-six months and obviously the longer the contract the less the monthly payment which makes it less of a burden.
There are basically two types of car leasing: the Closed end leasing and Open end leasing. With closed end leasing, the leaser has the option of changing the vehicle to another at the end of the lease contract where as with open end leasing the leaser is required to buy the vehicle at the end of the contract at a price determined before the lease contract was signed. Closed end leases are widely considered the better option because of the flexibility offered. A few of the benefits of taking up a car leasing contract:

• The main benefit of car leasing deals is that you are basically renting the car for the duration you want with an option of owning it or switching another car of choice after the contract expires. It helps individuals avoid the stress and complication that may come with having to sell a car after using it for a while.

• Another benefit is that a leaser can lease any type of car they want as they do not require a bank loan to take up a leasing contract compared to out rightly buying a car where there is a possibility that the bank might not be able to loan the amount required as banks have a limit on the amount that can be loaned for car purchases.

• Car lease deals come with warranty that will normally cover the entirety of the lease as well as any maintenance costs that may become necessary. Additionally, the lease may even cover the costs of road tax.

• With car leasing contracts, you are required to pay a small deposit when signing the contract just like most investments, this is nothing compared to the huge amount required to make an outright purchase, the car can be taken home immediately after signing the contract and a monthly payment is setup. The monthly payment makes it easier for individuals with average incomes to afford a car of their choice.

If you are caught up between deciding if you should buy or lease a car, your financial status and type of car you are considering should be your main deciding factor. Another thing to keep in mind is 'If it appreciates, buy it. If it depreciates, lease it'.

Key Questions To Ask When Leasing A Car

Leasing a car is a lot easier than most of us think. Check out these list of the key questions you should ask if you are looking to take up a lease deal.

Should I do this personally or through the business?
As a business user, depending on your circumstances, you may have the option of leasing your car through your business, or alternatively you may lease the car as a private individual. Private individuals and customers who are receiving a company car allowance usually have the option of  Personal Car Leasing/Contract hire.

What is the initial payment?
For business-users or businesses, a minimum of one rental in advance is possible (subject to credit approval), but typically an initial payment equivalent to 3 regular monthly rentals is required. Larger initial payments can be made if required, which will lower the regular monthly rentals.

How will my monthly payments be collected?
Monthly rentals are usually collected by Direct Debit.

Will my new lease car come with a warranty?
New Lease cars are supplied with full manufacturer’s warranty

Does my monthly lease rental include car insurance?
Contract Hire and Personal Contract Hire (PCH) lease contracts do not include car insurance; your new lease car must be covered by a fully comprehensive insurance policy for the duration of the contract, which is your responsibility to arrange.

Who will supply my new car?
All leasing companies have a network of franchised vehicle dealerships that they deal with or have a partnership with. The cars are supplied through these dealers.

Why do some prestige models cost less to finance per month than certain more common cars, which cost less to buy initially?
The monthly rentals payable are calculated considering many factors. These include the purchase price, the mileage agreed and the future predicted value of the vehicle (residual value). If the residual value of certain cars is far higher than other in its class, despite the fact that the purchase price maybe higher the monthly rentals may be lower.

Can I put a personal number plate on the car?
There will normally not be a problem. Be careful with contract hire and any agreements where the vehicle is registered in the name of the finance company. Make sure that you have their agreement and their confirmation that they will transfer the number back to you at the end of the agreement.

What happens if the car is accident damaged, to the point of being written off by the insurance company? Am I liable for any shortfall in value?
In most cases the insurance company will negotiate directly with the company you are setting up a lease though. Policies vary with different companies, it is advised you check out the policy when setting up the lease contract.

How can the car leasing companies afford to offer such low priced special offers? Surely most of these cars would depreciate more in value per month than the monthly rentals payable?
Due to the bulk purchases that the car leasing companies make large discounts are often given thus reducing the initial cost and therefore monthly rentals payable.

My circumstances have changed and I now need to amend the agreed mileage part way through a contract. Can I do this?
This is not usually a problem with most car leasing companies, as it will just mean that an alternative agreement will need to be made as regards the monthly payment to allow for an increase or decrease in mileage.

What if I exceed the agreed mileage on the contract?
This happens to a lot of people. Exceeding the agreed mileage on your contract usually leads to having to pay fee that is calculated based on the number of  extra miles and a charge per mile

What happens at the end of the lease contract?
When the lease contract ends, you can either arrange for the vehicle to be collected or extend your contract.

Hopefully this list will come in handy for anyone looking to lease a new car soon!

Why choose Contract Hire?

Contract Hire is quickly becoming the #1 choice for motorists throughout the UK. There are many reasons why Contract Hire is so popular:

• It offers off balance sheet funding.
• It is a VAT efficient way of operating a company car.
• It provides fixed motoring costs for the contract period.
• It removes the uncertainty surrounding future, ever fluctuating residual values.
• It allows to you takes advantage of the purchasing power of car leasing companies.
• It frees up your staff time, by reducing in-house administration.
• It offers detailed reporting is required.
• It is available with an optional monthly maintenance charge (which covers routine maintenance and servicing costs).

Low monthly rentals
There’s no large initial outlay and monthly payments are fixed, so it’s good for cash flow and makes budgeting a cinch.You pay a fixed monthly rental and at the end of the contract hand the car back to the leasing company with nothing to pay (provided that the car meets the mileage and condition criteria agreed at the start of the contract).

Hassle-free motoring
So you don’t have the hassle of selling the car when you replace it. It also means you don’t have to worry about the risk of falling used car values (known as residual values). If the second-hand car market drops suddenly, that’s the leasing company’s problem, not yours.

Good for business
Most of the fleet management can be handled by the fleet provider, which frees up company resources and the funding isn’t shown on the balance sheet, which reduces a company’s debt liability and helps to improve your corporate credit rating.

End of contract
At the end of a contract hire agreement - after the vehicle is returned - car leasing companies will charge for any excess mileage (over and above the total contracted mileage) and any damage (or unfair wear and tear) on the vehicle. These charges can vary from reasonable to very steep - depending on the leasing company - so it is advisable to check the small print on your contract before you sign. Also, if you end (early terminate) a contract hire agreement early, the penalties can sometimes also be quite high - typically 50 percent of the remaining rentals. So if you're unsure about the length of time that you want to keep the car, it may be more prudent to pay slightly more per month for a shorter contract length.