Should you lease or purchase your next car?

Why are people now deciding to lease cars rather than purchase?

Every one who drives a car incurs a cost. The cost can be broken down to a monthly figure. Even if you drive a low purchase price, second hand car, the chances are you are paying £2000 a year in depreciation / servicing / Mot's etc. etc. and are driving a car that is second hand. The monthly Leasing costs can be almost as cheap for a brand new car and that is why people are leasing. A new car with Minimum deposit or initial payment, Minimum monthly payments, No risk, using someone elses money, it speaks for itself!

Company Car Schemes

• No capital investment required for vehicles will depreciate over time
• Allows the business to concentrate on purchasing assets that are more likely to increase in value and preserve cashflow
• No change to banking credit status

Cash Allowance

• No Company car taxation
• Pay standard tax on allowance
• Choose any car (you can afford)
• Typically you would get a loan from your bank to pay for car, and the cash allowance you receive from your company will contribute towards the cost

So what's different with Car Leasing (aka Contract Hire)?

Over 80% of businesses today fund vehicles by using a range of leasing schemes. Leasing enables them to effectively use the asset rather than own it.

Benefits to the business are

• No capital investment required for vehicles will depreciate over time
• Allows the business to concentrate on purchasing assets that are more likely to increase in value and preserve cashflow
• No change to banking credit status.

As well as the benefits to business, private individuals use car leasing finance products for the same reasons and allows them to

• Acquire brand new cars every two or three years.
• Stop worrying about the car depreciating in value. The individual doesn't own the car the lease company (e.g. Skyfleet) does.
• Gain access to prestige models that would normally be too expensive with other forms of finance.
• Avoid the need to haggle in the used car market.
• Make lower monthly payments that can also cover maintenance and servicing.

 

Car leasing for Private individuals

Personal Contract Hire (PCH)

• A monthly fee is payable to the leasing company to use the vehicle over a fixed period
• The vehicle belongs to the leasing company throughout the term (1-5 years)
• A deposit usually equal to three months payments is payable on the the first payment
• At the end of the contract the vehicle is returned to the leasing company

Please note: The individual is often given the option to purchase the vehicle at the end of the term.

Personal Contract Purchase (PCP)

PCP is similar to PCH with the only difference being that the individual is always given the opportunity to purchase the vehicle at the end of the contract. This will be at a predetermined balloon payment rate.

At end of contract the individual hirer has three options

1. Purchase the vehicle for the predetermined balloon figure
2. Return the vehicle at no additional cost
3. Continue to use the same vehicle with ongoing repayments being calculated on a new residual value.

Lease Purchase (LP)

A lease purchase agreement is similar in many ways to a normal hire purchase with the only difference being that payments are lower due to deferring part of the amount owed to the end of the agreement as a balloon payment.

• The balloon payment must be paid at the end of the term
• There is no obligation for the supplier to take the vehicle back at the end of the agreement
• The final balloon payment can be made from the proceeds of the sale of the vehicle.

 

Is Car Leasing for you?

No doubt there will be car buyers/enthusiasts who will always prefer to purchase and own their vehicles through traditional financing channels such as bank loans etc. However, since the introduction of a varied range of car leasing finance options, individuals now have greater flexibililty and a more business approach to the purchase of assets. At the end of the day all cars will eventually end up in a scrapyard regardless of how they have been purchased, so be smarter with your money the next time you renew your car.... and give us call.

>> Click here for information about Skyfleet's car leasing and contract hire finance options