5 Top Tips on Car Leasing in the UK Explained by Intelligent Vehicle Finance
Business leasing of a company car has been the ‘norm’ in the UK for decades. In the US, leasing a car for family use is very much the way to go, but has been less popular in the UK, with many opting to “buy” the vehicle on a loan or finance deal. Over the last 5 years, with lower bank rates built-in to car leasing deals, private car leasing is becoming as popular as business leasing. If you are considering leasing a car for personal use (or business use for that matter) here are our top 5 tips on what to consider when leasing a car in the UK.
Tip 1 – Find the car, make model and features you require
Some people choose to find a car based on their leasing budget and then build the make and model and add additional features to take the car up to the budget. Although this allows you to build a car within budget, often a few months down the road, you start to yearn for the features that you didn’t include.
A more sensible approach, and one that means you get the car and features you require is to build the “spec” of the car first and then find the best lease deal. This way you can add options to the lease deal itself to keep within a budget.
Tip 2 – Choose the correct financing package for your circumstances
To a novice, the car leasing market can seem confusing, but it is actually fairly simple. Terminology such as contract hire, finance leasing, hire purchase, personal contract hire, personal contract purchase, PH, HP, PCP and PCH… no wonder the average member of the public gets in a muddle.
Here is a brief explanation of each and their benefits
Contract Hire – most people understand the principle of “car hire”, where you rent a car or van for the weekend or short-term. Contract hire is the same principle, just over a longer period. Contract hire refers to when a business or company hire the vehicle. If a person or individual takes out contract hire it is referred to as “Personal Contract Hire” or PCH. Both are a long-term hire of a vehicle until a fixed date in the future.
The benefits of both contract hire for business, and personal contract hire are the same. As you are hiring or renting the vehicle you do not own the vehicle. You have full use of the vehicle, as you would if you have bought the vehicle any other way. A benefit is that at the end of the hire period the car returns to the company. You do not suffer any depreciation on the vehicle. With this type of hire a sum of money, usually equivalent to 3, 4 or 6 months rental is required upfront.
For business or company contract hire there are additional benefits for VAT and for offsetting the rental charge against tax.
Finance Lease – Where CH or PCH is not suitable companies or individuals can opt for a finance lease. This allows you to have the vehicle at a low monthly rate without a sum of money being needed to paid upfront. At the end of the fixed term, a payment is required. This payment is often referred to as a “balloon payment”. When this type of lease is taken out by a person or individual, it is called “Personal Contract Purchase” or PCP.
There are many advantages to a finance lease or PCP. Firstly, you can get the new vehicle without making a payment equivalent to a few months rental. Although a final sum is required to keep the vehicle, the vehicle can be returned instead of the payment or an alternative finance package may be put in place to cover the balloon payment.
Again, for business or company contract hire there are additional benefits for VAT.
Hire Purchase – most people would understand this as a “loan”. The purchase price of the vehicle (and agreed interest rate) are calculated and then spread as monthly payments over the number of months you wish to pay. There are no deposits or balloon payments. At the end of the term you keep and own the vehicle.
Tip 3 – Protect yourself against financial shortfalls
When you are leasing a vehicle, either for business or personal use, you have a vehicle that you are financially committed to. In the event of theft, fire or a car accident your insurance company will “pay out” the value that they deem the vehicle to be worth, What is “owed” on the car is not taken into account by the insurance company. This may mean that in the event of something untoward happening, you could be left to pay the difference between the amount owed and the amount paid out. Don’t panic – there is a solution.
First, let us show an example:
- You lease a vehicle which had an original value of £18,500
- 12 months later the vehicle is involved in an accident and written off
- The outstanding value of the vehicle under your finance agreement is £13,700 but the insurance payout is only £12,400
This would mean that you would have to pay the “missing” £1,300.
Gap insurance – This insurance can be added to the lease agreement to cover any shortfall between what is owed and the settlement. In the example above, subject to the policy terms & conditions, GAP insurance will pay out the £1,300 shortfall on your behalf.
Gap Insurance gives peace of mind, that in the event of an accident, you are not financially penalised.
Tip 4 – Plan, manage and budget for additional running costs
Whether you have a new car, old car or vintage car there are running costs you cannot avoid. Depending on your mileage, these can add up. When leasing a car you are still going to need to replace tyres, bulbs, wipers etc. The car will still need to be serviced and any breakdowns repaired. When you lease a car you have the option of taking out a maintenance package. This is a great way to budget against known and unforeseen running costs, secondly it gives you peace of mind that should anything mechanical go wrong with the car, you can drive straight to a top-brand recognised garage and get it repaired, at no cost to yourself.
Tip 5 – Ask about partner programmes
Often a leasing company will have partner programs with preferred suppliers such as car insurance providers. As the lease car company will often be insuring 100’s if not 1000’s of vehicles with the insurance company, they may have the benefit of “bulk buy” discounts they can pass on to you. Also, partner programs may offer freebies with every car lease, such as free fuel. Don’t be afraid to ask what deals there are to entice you to lease from them.
These 5 tips on car leasing in the UK were brought to you by ‘Intelligent Vehicle Finance”. A UK leasing company that GUARANTEES the best lease deals. As well as the latest models, in all ‘specs’ we offer all leasing and finance options and search to get you the best deal for your circumstances. We can also provide you with a maintenance contract on any lease. We have preferred partners for insurance and often have free offers, such as (at the time of writing) £1000 of free fuel with every lease.
For more information please visit the website at https://www.intelligentvehiclefinance.co.uk