Leasing can be a confusing business. There are so many things to consider and decide upon that sometimes you can be left wondering if you wouldn’t be better off purchasing instead. Stop right there! Purchasing might give you a great feeling initially but after a while you’ll be left selling a vehicle at half the value you purchased it for and you’ll almost definitely be left out of pocket.
Leasing is a fantastic option for any individual or business that values their money and offers great benefits such as no depreciation worries, no maintenance fees and fantastic lease vehicles. I know it can seem daunting at first but once you get your head around the confusing jargon, leasing can actually be fairly simple to understand.
There is a wide range of leasing and purchasing agreements available and the right one for you will ultimately depend on your personal needs and budget. All reputable leasing companies will know their facts and should be able to help you to identify the right leasing or purchasing agreement for your firm or family. If you think leasing might be the best option for you then here’s a quick run down of your available options.
Hire Purchase: Hire Purchase is simply a method of purchasing a vehicle via monthly financial payments. The vehicle becomes the property of the lessee at the end of the agreement and the size of the monthly payments depend on the deposit paid, the assessed price of the vehicle and the length of the leasing agreement.
The loan is essentially secured against the vehicle, which means it can be repossessed at any time if payments aren’t made. The interest elements of the Hire Purchase fee can be offset against taxable profits which is a great added benefit. Hire Purchase is normally taken out by individuals for personal leasing, rather than for business leasing and is a top option for anyone looking to retain their vehicle at the end of the agreement.
Contract Purchase: Contract Purchase is fairly similar to Hire Purchase but is normally taken out by businesses. With Contract Purchase the company agrees to purchase the vehicle via a series of monthly payments. The monthly instalment covers the cost of the vehicle plus any interest charges. It also covers charges for any additional costs, including maintenance and servicing.
At the end of the agreement there is usually a final balloon payment which is equal to vehicle’s residual value – after which time the legal ownership passes to the lessee. Once the lessee owns the vehicle, the lessee is entitled to keep the vehicle, sell it or sell it back to the financing company for the price which was agreed at the beginning of the contract. Legally speaking, ownership of the vehicle for tax purposes is passed to the lessee once the contract is signed so it can be written down on the balance sheet. Contract Purchase is ideal for businesses that know they want to own the vehicle but can’t afford to purchase it outright.
Lease Purchase: Lease Purchase is fairly similar to Hire Purchase and Contract Purchase but it can offer businesses much more flexibility. Lease Purchase offers businesses the same advantages as Hire Purchase but monthly payments can be reduced by agreeing to a final deferred payment. The final payment will depend upon the anticipated mileage and usage of the vehicle throughout your contract.
At the end of the agreement, businesses will be given the option to pay the lump sum and keep the vehicle or to part exchange it, using any remaining amounts to pay for a deposit on a new vehicle. Most leasing firms offer a range of Lease Purchase plans which all offer a low initial deposit and the chance to offset interest charges against tax. This option is great for businesses looking for a flexible purchasing agreement.
Contract Hire: Contract Hire is easily one of the most popular business leasing options available – in fact more than half of all new company cars registered each year are funded this way. In simple terms, the vehicle is leased to the business for a set time and a specified mileage in return for an initial deposit and a monthly fee. During the contract the vehicle remains the property of the leasing company and at the end of the contract the vehicle is returned to the company.
Contract Hire removes the risks that are normally associated with purchasing, including depreciation and selling hassles and because the vehicle remains the property of the leasing company, it doesn’t have to shown as an asset on your balance sheet. Contract Hire is perfect for businesses who want all the advantages of high-end company cars without the high price tag.
Personal Contract: A Personal Contract is a flexible finance scheme which allows individuals to drive a new high-spec vehicle every 2 to 3 years for a smaller monthly payment than traditional financing agreements. Personal Contracts are so popular thanks to their flexibility and the choice you are left with at the end of the agreement.
One option is to keep the car. All you have to do is pay off the Guaranteed Future Value (the value of the vehicle at the end of the lease which is decided at the beginning of the agreement) and it’s all yours.
Alternatively if you’ve decided that the vehicle isn’t the right one for you then you can return it to the leasing company with nothing to pay (subject to the mileage and conditions terms). This eliminates any depreciation or selling concerns.
The third option is to choose another vehicle – simply sell or part exchange the vehicle against the cost of another one and make the GFV to the funder. If the part-exchange price is larger than the GFV you can keep the difference or alternatively put it towards a deposit on a new vehicle.
As you can see, Personal Contract offers more flexibility than almost any other leasing option, making it the ideal pick for individuals who aren’t sure what they want to do at the end of their contract and who want a choice.
Finance Lease: Finance Lease provides greater flexibility than traditional Contract Hire. With Finance Lease you can either pay off the cost of the entire vehicle, including interest charges, over an agreed period or pay lower monthly rental fees and pay a larger balloon payment at the end of the lease. Unlike other leasing options, Finance Leases doesn’t include maintenance and repair fees so users could end up paying more in the long run.
At the end of the lease the user can continue to operate the vehicle for a fee but the vehicle remains the property of the leasing company. The vehicle does appear on your balance sheet even though ownership lies with the leasing company but some or all of the rental charge can be offset against taxable profits. Finance Lease is a great option for anyone who wants to make minimum monthly payments and who doesn’t mind paying maintenance and repair costs out of their own pocket.
There are other leasing and financing options but these are the top 6 options. The right agreement for you will ultimately depend on if you have personal or business needs, whether you want to purchase or lease the vehicle, how much you want to pay each month and how much you can afford to pay for a final balloon payment. Most leasing agreements only last for a few years so if you feel one leasing option isn’t right for you, try another next time – it might take a while but in the end you’ll find the right leasing option for your family or business.
Like I said earlier, leasing companies know their stuff and will more than happy to sit down with you to discuss your options. Whichever leasing option you choose, you’ll soon realise that vehicle leasing beats vehicle purchasing each and every time.