Why is car leasing so popular for businesses?
Car leasing has predominantly been associated with businesses, though there has been a significant rise in personal leasing.
Leasing is an attractive prospect for businesses, and there are many reasons for this. For example;
- The cost is fixed
- When you lease a car, the price is fixed for the duration of the contract. This makes it easy for businesses to budget for this. It can also include road tax and maintenance, but not always.
- You get a new car every few years
- Your employees will be driving new cars every few years which is good for both company image and employee morale
- Company cars attract top employees
- A company car is a great perk and attracts some of the best employees to apply for positions, we even did a study proving so
- It frees up cash
- You won’t have your cash tied up in a depreciating asset
- There are tax benefits
- If you are leasing a car through a VAT registered company, you can claim 50% of your VAT back on the payments, and 100% of the VAT back on a maintenance agreement.
- Better accounting solution
- The finance commitments can be “off balance sheet” and therefore the liability of the finance is not shown on company accounts. This is appealing to many companies.
- Alternatively, if you have a finance lease, then this can be an asset on your balance sheet.
So those are some of the reasons why business leasing is so popular.
What are the different types of business lease?
There are two types of business lease that are available to you; Contract Hire and Finance Lease.
Contract Hire is what people often mean when they talk about leasing a car. It is the most popular form of leasing and is pretty straightforward.
You have a car for a set period of time, paying a fixed amount each month. At the end of the contract, you hand the car back with nothing else to pay (subject to mileage and condition restrictions, more on that here).
This means that you can get a new car every few years, and you don’t have to worry about disposing of the vehicle as it simply goes back to the finance house. You can watch our video on Contract Hire below. For more information on the pros and cons of Contract Hire then you can read our article here.
A Finance Lease is a good option for those whose company vehicles are going to be doing more than their fair share of wear and tear or very high mileage (over 50,000 miles a year).
Finance Lease is where the company pays a fixed monthly payment for a set period of time. At the end of the agreement, the vehicle is sold to a 3rd party to clear the final payment. You can also extend the contract for a small payment called a peppercorn rental. This is usually one monthly payment. You can watch our video on Finance Lease below. For more information on the advantages and disadvantages of Finance Lease, and whether it is right for you, you can read our article here.
Why is car leasing so popular with private individuals?
As we said, while car leasing has been predominantly for businesses in the past, it has become a very viable option for private individuals as well. There are several reasons for this, including;
- The cost is fixed
- This makes for easy monthly budgeting.
- You don’t have to worry about disposing of the car
- You can simply hand the car back at the end of the contract, you don’t have to worry about selling it on.
- You don’t have to worry about depreciation
- This is a huge advantage of leasing. When you own a car, you will resell it for less than you bought it for because it will lose its value. However, if you are leasing you hand the car back and don’t have to resell it which means depreciation is something that you don’t have to worry about.
- You get a new car every few years
- This is one of the main reasons people lease a car. You get a brand new car every few years and you don’t have to worry about selling your old one
- It is often cheaper than buying a car
- When you lease, you only pay for the amount the car will depreciate over the period of your contract. This means that it is often more affordable than if you were to buy a car, either outright or via a Hire Purchase.
- You can drive a nicer car for less money
- Because you only pay for the depreciation, you can often get a better car for the same or less money. Cars such as Mercedes and BMW depreciate slower than many other brands, which makes them surprisingly affordable to lease. So you could be driving a brand new BMW for much less money than you originally thought.
What are the different types of personal leasing?
The main type of personal leasing is Personal Contract Hire.
It works the same way as Contract Hire in that you pay a fixed monthly cost for a car for a set period of time. Once that time is up, you hand the car back with nothing more to pay (subject to mileage and condition restrictions).
You can read more about Personal Contract Hire here, or watch our video on Personal Contract Hire below.
Is car leasing right for me?
Many of our customers start out by asking us ‘is car leasing right for me?’ and the chances are, car leasing is right for you.
Car leasing is good for pretty much everyone. If you;
- Like the idea of getting a new car every few years
- Don’t want to have to worry about depreciation
- Don’t want to worry about reselling your car
- Want fixed, low monthly payments
- Want to drive a more expensive car for a more affordable price
- Want to boost morale and attract the best employees to your business
- Want to enjoy the tax benefits of leasing (for businesses)
Then there is no reason why car leasing wouldn’t be the perfect option for you. It is structured, you don’t have to worry about reselling your car and you can be driving a new car in a few years time. Leasing isn’t just suited to one person, it’s for a lot of different people and lease contracts can be catered to your personal situation.
Who is leasing not good for?
That said, there are some people who might not be suited to car leasing. For example;
- If you want to own the car
- If you lease, then you don’t own the car. So if you want to have the option to own the car at the end of your contract we recommend either looking at a Contract Purchase, Personal Contract Purchase or a Hire Purchase
- You have bad credit
- This doesn’t necessarily mean you can’t lease a car, but it can make it more difficult.
- You don’t want monthly payments, or can’t afford them
- Car leasing contracts aren’t made to end early, and they are difficult to get out of. You need to make sure that you are in a financially stable situation, and will be for the duration of your contract.
As you can see, there aren’t many scenarios in which car leasing would be a bad idea or bad for your personal situation. Ultimately, the chances are leasing will be good for you. You can read more about leasing with bad credit here.
In conclusion, car leasing is so popular because it’s such a viable option for many. The monthly payments are fixed and can be kept low, and you don’t have to worry about reselling your car. Road tax is often included, and businesses will not have their cash tied up in a depreciating asset. There are tax benefits to business leasing, and having your employees drive the latest cars will be great for company image. If you are a private individual, then you don’t have to worry about depreciation, and you could be driving a nicer car than you might have thought possible. Ultimately, car leasing is a very viable option for many, and we predict it will become even more popular in the years to come.
- Benefits of business car leasing - 13th April 2021
- Things businesses should consider before hiring a Fleet Manager - 12th April 2021
- Tax benefits and implications of business car leasing - 8th April 2021