Leasing Guide

How leasing works

A lease is essentially a long-term rental agreement, offering exclusive use of a car for a set period at a fixed monthly price.

As a business this is generally the most cost efficient method of funding the use of new vehicles.

The greatest cost of running any new vehicle is depreciation, and as many new vehicles will lose more than half their initial value after the first three years of ownership this can work out pretty expensive.

Leasing explained

Leasing a vehicle allows you to simply pay for the use of the vehicle. And with a fully maintaineds plan you can avoid any unexpected costs as routine servicing, maintenance and tyres can be included for one fixed monthly payment for the term of the lease.

Unlike dealer finance or bank loans you only pay for the depreciation of the vehicle over the term rather than the full capital value.

Rather than pay large deposits you simply pay an initial payment, usually equivalent to 3, 6 or 9 monthly payments, at the start of the lease.

The monthly payment you agree is based on your estimated useage - mileage - and any mainteance element.

Then, at the end of the lease period (typically two or three years), you simply hand the car back. The job of selling the car and picking up the tab for depreciation is the responsibility of the lease company.

Personal Contract Hire

As the name suggests Personal Contract Hire (also known as personal leasing) is simply contract hire for individuals

Personal Contract Hire (PCH) is based on a fixed term contract where customers pay an agreed monthly charge for the use of a vehicle for an agreed term.

Advantages:

  • Flexible initial payment
  • Fixed term contract
  • Fixed mileage contract
  • Fixed cost motoring
  • Flexible profiles to suit you
  • You only pay for the use of the vehicle
  • At the end of your contract simply hand the vehicle back
  • Option of including maintenance with the contract
  • No depreciation or disposal risk

Disadvantages:

  • Vehicle must be returned in a well maintained condition
  • Early termination can be expensive
  • You must have fully comprehensive vehicle insurance
  • You will never own the vehicle

More Information on Personal Contract Hire:

It benefits customers wishing to eliminate the financial risk associated with disposing of a vehicle. Contracts are usually taken over two, three or four years, providing a high level of flexibility. Some contracts can be formally extended beyond the end of contract date if required. Just ask and we can answer any of your questions regarding extending your contract.

The monthly rental is based on an agreed annual mileage. 

Regulations with regard to making mileage amendments after contracts are live vary from funder to funder, so it is always better to be as accurate as you can be. If you do exceed the agreed allowance at the end of your contract you will pay an excess mileage charge, which will have been agreed upon prior to signing the finance agreement.

By adding maintenance to you contract for an additional paymnet you can insulate yourself from ongoing costs such as servicing, routine maintenance, tyres, exhausts and batteries.

Please note that it is responsibility of the person named on the finance agreement to arrange and pay for appropriate fully comprehensive insurance for the vehicle.

It is important that the vehicle is returned in accordance with the guidelines set out by th efunder which can be found in their 'Fair Wear and Tear Guide', a copy of which is made available to customers when they are near the end of their PCH agreement.

Business Contract Hire

A simple and cost effective way to fund any number of vehicles

Contract Hire is a long term rental agreement. Contracts range from 12 to 60 months and are tailored to the businesses requirements.

Advantages:

  • Minimum capital expenditure
  • Accurate monthly budgeting
  • Improved cash flow
  • Fixed interest rates
  • Rentals can be offset against the businesses profits. Cars with a CO2 output above 130g/km are currently subject to a 15% disallowance on the amount of the rental that can be claimed against the businesses taxation, for contract-hired cars with a CO2 output of 130g/km or below, there is currently no disallowance.
  • Reduced administration
  • On-going advice and support
  • Road Fund Licence provided (vehicle excise duty paid) for duration of contract
  • Optional maintenance package
  • Optional breakdown rescue cover
  • Optional replacement vehicle cover in event of breakdown

Disadvantages:

  • Early termination can be expensive
  • If you do more miles than stated in your contract you will be charged excess mileage for each mile over that stated in your contract
  • You must look after the vehicle and return it in a well maintained condition otherwise you will be charged for any damage over and above that stated in the funders 'Fair Wear and Tear Guide'
  • You must have fully comprehensive vehicle insurance
  • You will never own the vehicle as there is no option to buy it

More Information on Business Contract Hire:

The Contract Hire Company reclaims the VAT on the original purchase, which reduces your monthly rentals (which are + VAT). Contract Hire is a very popular choice for VAT registered companies as they can generally claim back 50% of the VAT on the finance element for cars and generally 100% for commercials (subject to no private use, no exempt turnover and not being on the Flat Rate VAT Scheme).

On contracts with maintenance the VAT on the service element is 100% recoverable. One of the major benefits is that there are no disposal worries as the future value is underwritten by the leasing company. Another benefit of Contract Hire is that it is generally 'off balance sheet funding' (subject to legislation change) which means it can improve your gearing ratio (assets to borrowing ratio) and therefore possibly your borrowing ability in the future.