Is car leasing better than buying?

In the last 10 years, and especially since COVID, the price of cars has increased well above normal inflation as the cost of materials, manufacturing, transport, labour and taxes have increased for large motoring companies.  Both new and used cars are now at record highs although we are seeing a lot of volatility in used values across all fuel types in 2023, especially in electric which has had well documented price drops in the used market.  But people and businesses still need cars.

Leasing, or contract hire, has emerged as a fast growing finance product designed for individuals and businesses to get ‘use’ out of a car at a fixed monthly cost over a set time period (usually 2-5 years) and pre-agreed annual mileage.  

The model of contract hire is essentially the same for both individual and business – for individuals the rentals include VAT, this is known as Personal Contract Hire (PCH).  For businesses, the rentals are net of VAT as they are obliged to pay VAT, this is Business Contract Hire (BCH).

The overall essence is that the user (individual or company) is paying for ‘use’ of the vehicle rather than paying the vehicle off the vehicle for ‘ownership’.   So, as you aren’t paying off, your overall payments will be lower over the period.  No longer do you need a large amount of money, or to take out a large loan, to buy a vehicle to get use of it, leasing is a more cost effective way to get use of a car.

You might be better buying the car if you have a large amount of money at your disposal.  The advantages of this are :

• You will gain ownership;
• You aren’t limited to an annual mileage;
• You don’t have to keep the car in a ‘tip top’ condition; and
• You can sell it whenever you want.

However, when it comes to buying you need to consider that :

• The initial cost (down payment) or full payment can be high;
• If you finance it, you may have the largest payment due in the last month ie the final balloon payment;
• You don’t get road tax included after the 2^nd year;
• Cars depreciate in value and it isn’t guaranteed to be a set amount each year;
• You could be in the car longer due to a longer repayment term;
• As cars get older, they can develop problems that are expensive to repair, especially if they are out of the warranty period; and
• If you want to change it, selling your car isn’t easy, especially if you have an outstanding loan on it that is higher than the market value of it. Disposal times can be lengthy whilst you wait for a buyer. Concerns over receiving payment when selling are something that many individuals worry about.

So leasing, or contract hire, is a great way to get you into a car without spending a large amount of money. The main benefits are :

• The initial cost (known as initial rental) is low;
• If you want to lower your monthly rentals you can pay a larger initial rental;
• The cars are predominately brand new or some are pre-registered with delivery mileages;
• As they are new, they are the latest technology and more reliable, usually with cleaner engines or power sources;
• Road tax is included for the term;
• You can include a service, maintenance and tyre package so no unnecessary and unexpected costs occur during the contract period (includes MOT’s if needed);
• If you are doing low annual mileage, your rental will be lower the payments of paying off a car on finance;
• Big tax incentives for Limited companies in reclaiming 50% of the VAT on the finance costs and 100% of the VAT on the maintenance costs.
• Limited companies can also offset 100% of the net finance costs against taxable profits if the car CO2 is 50g/km or lower. If above CO2 51gkm, they can offset 85% of the finance costs against taxable profits.
• Delivery to your home address or business address or indeed collect from the dealer if you live nearby.
• At the end of the contract term you hand the car back and can go again for another lease of the latest car model at that time in the near future.
• The smell, look and feel of a new car……..it’s a great experience!

The points to be aware of that may cause concern with contract hire are :

• You wont own the vehicle, you aren’t paying enough each money to pay off the car so it is purely pay for use;
• You are restricted to the annual mileage that you agreed to at the start of the agreement, if you go over it there will be an excess mileage charge of pence per mile that will be shown in your quotation and contract;
• Although fair wear and tear is allowed as per the guidelines provided by the British Vehicle Rental & Leasing Association, any damages or missing items will be rechargeable at the end of the contract;
• You will need to pass a credit check, so if your history is poor you may not get approved.

So above and the table below should help you in your research, however, if you have any further queries please feel free to ring one of our team or email into our office sales@everyvehiclelease.co.uk