Leasing versus Buying? The benefits of personal car leasing.
Personal car leasing, or personal contract hire as it is sometimes known, has always been extremely popular in the United States with one in four cars having been leased. Personal car leasing has also become increasingly popular in the UK yet many drivers who could benefit from leasing their car are still taking out car loans or hire purchase to aquire their vehicles. The main reason for this reluctance to lease is usually the lack of knowledge of the benefits of leasing and the confusion caused by the terminology that surrounds it. In the following article we will explain, in easy to understand language, the personal car leasing process and how it may be the ideal choice for you.
The benefits of personal car leasing
Before we take a look at the main benefits that car leasing has to offer it is worth bearing in mind the famous quote of oil baron Paul Getty - " If it appreciates, buy it. If it depreciates, lease it ". A car is not like a house which usually appreciates in value after purchase, whereas, when you drive away in your brand new car it is already losing value. If you take out a car loan or hire purchase agreement to purchase a car you are simply paying a set amount a month for something that is losing, not gaining value. Let's take a look at the main benefits of car leasing.
- Monthly repayments will be on average between 35% and 55% less costly than the repayments on a car loan. Also, in the majority of lease agreements, only a small deposit is necessary, usually amounting to 3 monthly payments.
- One of the biggest attractions of car leasing is that you are able to drive away in a car that might be out of your price range in terms of purchase price.
- The car's warranty will normally cover the period of the lease and all maintenance costs can be covered for an additional small cost. Road tax is nearly always included in the lease.
- No huge up-front costs, capital outlay or car loans.
- Fixed price motoring where most costs remain the same for the period of the lease.
- You can have a brand new car every two to four years.
What cars are best for leasing?
It is important that the car you lease will lose as little value as possible over the term of your lease agreement. Generally speaking, cars made by German manufacturers depreciate far less than other makes. For example, the new Audi A4 Saloon and the Volkswagen Golf are extremely popular due to the high residual value remaining at the end of the lease. This also leads to cheaper monthly payments. The Audi A4 Saloon is available for as little as £289 a month.
What makes up a lease payment?
The lease price of a car will be determined by the initial purchase price (with discount taken into effect), the age, mileage, condition and residual value of the car. So, if a car loses less money and has a lower mileage, it's residual value will be higher and therefore will cost less to lease.
SEE AN EXAMPLE OF LEASING VS BUYING
BUSINESS CONTRACT HIRE
If your Business normally buys its cars with cash, a bank loan, or through a traditional Hire Purchase scheme, then you may find Business Contract Hire a far more cost-effective option.
Under current VAT legislation, all of Scorpion Leasing's lenders are able to reclaim the VAT on your new vehicle. This saving is then passed on to your business in the form of lower monthly rentals, fixed throughout the agreement. Not only does Business Contract Hire allow you to run a new vehicle for an inclusive monthly rental, but it also releases valuable capital from your current vehicle or your next potential purchase.
Business Contract Hire can offer a package to include routine servicing and maintenance costs for a small increase in the monthly rentals. All scheduled maintenance work will be carried out by the main dealer network & at a local dealer of your choice.
At the end of your agreement Scorpion Leasing Ltd will arrange to collect your vehicle free of charge from your office address. Not only does this avoiding time-consuming disposal issues and any worries over depreciation of the vehicle but allows you to make the best use of your valuable time. Annual Road Fund Licence is included in the monthly rental for the duration of the contract.
PERSONAL CONTRACT HIRE
If you normally buy your cars with cash, a bank loan, or through a traditional Hire Purchase scheme, you may find Personal Contract Hire a far more cost-effective option.
Under current VAT legislation, all of Scorpion Leasing's lenders are able to reclaim the VAT on your new vehicle. This saving is then passed on to you in the form of lower monthly rentals, fixed throughout the agreement. Not only does Personal Contract Hire allow you to run a new vehicle for an inclusive monthly rental but it also releases valuable capital from your current vehicle or your next potential purchase.
Personal Contract Hire can offer a package to include routine servicing and maintenance costs for a small increase to the monthly rentals. All scheduled maintenance work will be carried out by the main dealer network & at a local dealer of your choice.
At the end of your agreement Scorpion Leasing Ltd will arrange to collect your vehicle free of charge from your home or office address. Not only does this avoiding time-consuming disposal issues and any worries over depreciation of the vehicle but allows you to make the best use of your valuable time. Annual Road Fund Licence is included in the monthly rental for the duration of the contract.
BUSINESS CONTRACT PURCHASE
Business Contract Purchase is a highly flexible and affordable way of driving your new vehicle. If your business normally buys its cars with cash, a bank loan, or through a traditional Hire Purchase scheme, you may find Business Contract Purchase a far more cost-effective option.
You pay an initial deposit, followed by a series of fixed monthly payments over an agreed period. Your payments may be significantly lower than you first think, because unlike a bank loan or traditional Hire Purchase scheme your monthly payments are calculated on the difference between the initial purchase value of the vehicle and its projected residual & re-sale value at the end of the contract. This means that only a proportion of the vehicle's value is repaid, along with any finance charges, avoiding large initial outlays or residual & disposal worries.
The car appears as an asset in the business or company accounts and a proportion of its value can be written down against taxable profits.
Business Contract Purchase gives you flexibility at the end of your agreed contract period. You have the option to own the vehicle but with the security of a guaranteed future value should the vehicle be worth less than the anticipated market value.
PERSONAL CONTRACT PURCHASE
Personal Contract Purchase (PCP) is a highly flexible and affordable way of driving your new vehicle. If you normally buy your cars with cash, a bank loan, or through a traditional Hire Purchase scheme, you may find Personal Contract Purchase a far more cost-effective option.
You pay an initial deposit, followed by a series of fixed monthly payments over an agreed period. Your payments may be significantly lower than you first think because unlike a bank loan or traditional Hire Purchase scheme your monthly payments are calculated on the difference between the initial purchase value of the vehicle and its projected residual & re-sale value at the end of the contract. This means only a proportion of the vehicle's value is repaid along with any finance charges, avoiding large initial outlays or residual & disposal worries.
PCP can ease cash flow and free up valuable capital that can be used more effectively elsewhere.
This method also gives you flexibility at the end of your agreed contract period. You have the option to own the vehicle but with the security of a guaranteed future value should the vehicle be worth less than the anticipated market value.
FINANCE LEASE
Business Finance Lease is a straightforward rental agreement that offers significant tax advantages, particularly if your business is VAT registered. Business Finance Lease is designed to make budgeting easier for your business.
With a 'Balloon' style Finance Lease you can reduce your monthly rentals even further because the car's estimated resale value is taken into account when the rental payments are calculated. The estimated value is then offset to the end of the agreement, thereby reducing your rental payments. At the end of your lease agreement, you must sell the car to an unconnected third party.
With a Finance Lease your sales proceeds will first need to cover your outstanding 'balloon' payment and any balance will then be refunded to you. Any shortfall remaining from the 'balloon', however, will be your responsibility to settle.
Like Business Contract Hire for VAT registered businesses, VAT is reclaimable on the rentals, based on 50% of the VAT on the capital element (assuming an element of private use) and 100% of the VAT for any maintenance charges.
It is important to stress that whilst you may benefit from the sale of your vehicle you could also be required to cover the potential shortfall. Finance Lease does not offer complete peace of mind and customers looking for no vehicle disposal issues would be better suited to Business Contract Hire.
