How do car leasing companies work?
When you are looking at leasing a car, or perhaps even buying a car, you may have come across some leasing companies.
As leasing became more popular, so did leasing companies. And now, there are lots of different leasing companies to choose from. However, while leasing companies are very popular, many still don’t quite know what they are, how they work, and what makes them different from dealerships.
That’s where we come in. OSV have been trading since 1997, and over that time we have seen leasing companies come and go. We have also learnt that transparency is key, and being completely honest with our customers has meant we have customers who return to us year on year.
So in this article, we are going to tell you exactly how car leasing companies work, how they make their money and how they differ from a dealership. We are also going to give you some tips on how to find the best car leasing company for you. Car leasing companies, or car brokers or vehicle brokers, are essentially here to be independent, or more independent than others.
Their general aim is to find the best offer for you. They do this by having the best buying power to purchase vehicles, and to work with finance houses to put a package together and create appealing monthly rentals in the hope of attracting customers. They work in a similar way as a mortgage broker, but with vehicles.
A majority of car leasing companies work from offices and are totally compliant with the Financial Conduct Authority (or FCA, as we will refer to them in this article). A majority are also VAT registered and are also completely independent. The most credible car leasing companies will be members of a leasing association. One of these is the British Vehicle Rental and Leasing Association (or BVRLA). These leasing associations have an annual audit on members to ensure that they are maintaining standards, are following best practice, and are continuing to put customers first.
Where do car leasing companies find their deals?
When you do some research on car leasing companies, you may have noticed that they find some really great deals. And you might be wondering, as they are independent, how they find these deals.Leasing companies build relationships with dealer groups. These dealer groups often want to sell in high volume and will often give bigger discounts to leasing companies. Leasing companies work with a different department within the dealer group, they work with fleet management. This means that even if you are a private customer, you will have access to fleet deals that you would not have access to should you go through a dealership. They also have relationships with a range of finance houses. This means that when they are looking for a deal for you, they can use all their contacts to get quotes and compare deals. They will then be able to give you the best deal for you and your situation.
So car leasing companies find their deals by developing and maintaining relationships with dealer groups and finance houses, which means they can find the best deal for you.
How do car leasing companies make money?
As we said, transparency is key, and that means even telling you how much car leasing companies make.
It really depends on the leasing company. Some make their money by charging an administration fee. This can be anything from £100 to £900. This is their profit and is there to pay for their services. A credible leasing company should make you aware of the administration fee before you sign anything.
Other leasing companies will charge the dealerships for introducing them to customers and providing them with business. How much they charge depends on their relationship with the dealership.
On average, leasing companies make anything between £150 and £500 per vehicle. In comparison to say, mortgage brokers, this amount is very small.
There is also the chance to make money selling insurance products, as long as they are compliant to do so. Others might have a volume bonus with a dealership or finance house. This is where they introduce a certain amount of customers in a set period of time, then they will get a lump sum at the end. This is to encourage loyalty and volume.
How does going through a leasing company benefit me?
So what’s in it for you if you go through a leasing company instead of a dealership?
For a vehicle broker to survive more than three years, they have to be well connected. And they will be far more connected than your local dealership. They have to be super knowledgeable and aware of all deals that are on at the moment. They also have to have a very streamlined system because the margins are small.
Therefore, they are experienced, practiced and due to their contacts with several manufacturers and finance houses, have more options when finding the best deal for you. If you go through a dealership then your options are very limited, this is not the case if you go through a vehicle broker.It is always a good idea to ensure that you are going through a vehicle broker that has been around for a while and is affiliated with a professional organisation. You should also ensure that they are following FCA regulations.
Is there a difference between getting a car from a leasing company or a dealership?
Sometimes dealerships will tell you that you will get a different level of service if you go through a franchised dealer. This is not true and is simply a hook to get people interested.
There is no difference between getting a car from a leasing company or a dealership in terms of the service from the manufacturer. You will still be able to take your vehicle to a franchised dealer for warranty work and for servicing. You will still get the same service levels as you would if you went through a dealership.
What should I look for in a leasing company?
There are some things that we recommend looking for in a leasing company before you decide which one to go for. These include;
- Looking to see how long the company has been trading
- As we mentioned, it would be wise to go through a company that has been trading for more than three years.
- Not only are they less likely to go under, but they will also be more experienced and have stronger relationships with finance houses and dealer groups.
- Make sure they have offices that you can find on a map
- There will be some leasing companies that work from their homes. These are often called ‘bedroom brokers’ and while they are not necessarily untrustworthy, the chances are they do not have the customer service process in place in case something goes wrong.
- Make sure they are accredited
- They must be regulated by the FCA and it is always a bonus if they are a member of a leasing association, such as the BVRLA.
- If the Vehicle Specialists have their own qualifications, such as if they are SAF (Specialist Automotive Finance) Experts, then that is also a huge bonus.
- Ask which finance methods they supply
- Some leasing companies only offer the one or two finance options, which means they might not be right for you.
In conclusion, car leasing companies are there to be independent and to get you the best deal they can for you and your situation. They do this by developing and maintaining relationships with finance houses and dealer groups and getting the best discounts they can. Car leasing companies have access to fleet deals, which you do not have access to if you go through a dealership. They make their money in a few ways. Some have an administration fee, others charge the dealerships and others make their money by selling additional things such as insurance. When looking for a leasing company it’s important you look at how long they have been trading and what accreditations they have. Hopefully this has cleared a few things up about what a car leasing company does.