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Leasing's origins started centuries ago in the form of an Asset finance facility whereby a customer would provide the lending financial institution security and an initial rental payment to obtain an Asset and the use of it for a period of time for a monthly payment. 

Leasing a vehicle although always popular in the USA was brought to the UK by Ford in the 1990’s and Leasing as we know it now was born. It took a long time to get going due to the reliance of the manufacturers of the PCP Personal Contract Purchase Product but since 2008 onwards the appeal of leasing has really taken off due to a lower up front payment “initial rental”  being needed compared to PCP. 

There are different types of leasing products which are all encompassed within the term leasing which are all slightly different and may be different to your needs/requirements.

Contract Hire

Contract Hire is the most popular Leasing product and is where a customer is a long term Lessee of the Vehicle.

Contract Hire is an agreement whereby the Lessee (Customer) pays a set amount each month to drive their chosen vehicle for an agreed amount of time and an agreed annual and contract mileage.

The Lessee builds their vehicle to their required specification and once they take delivery they pay the finance company the first payment which is called the Initial Rental. The Initial rental is normally a multiple of the regular monthly payment i.e 3x 6x or 9x. This can sometimes be called 3,6 or 9 Rentals in advance.

The lessee then pays a regular monthly payment for the duration of the lease contract (Normally either 24, 36 or 48 months) to drive the agreed amount of mileage and at the end of the contract they return the vehicle to the leasing company and replace it with a new vehicle.

The Cost of the rentals are determined on a number of factors including the capital cost of the vehicle, the annual mileage required and if the vehicle is Customer Maintained or fully maintained. A fully maintained agreement essentially means that the only additional costs throughout the contract are fully comprehensive insurance and Fuel.

The finance companies do offer “Customer Maintained” Contracts where it is the lessee’s responsibility to fully maintain the vehicle and “Fully Maintained” contract where all of the servicing, Tyres and other maintenance items are included within the rental. 

Please note that all vehicles that are returned to the finance company have to be returned with a fully maintained record and in showroom condition except fair wear and tear for the length of contract and mileage given within the BVRLA Fair Wear and Tear Guide. BN Financial Solutions will provide copies of these to all customers.

Contract Hire is available for Business and Personal users and the differences are as below:-

Business Contract Hire

Business Contract Hire is a contract hire product for business users including Sole Traders, Partnerships, Ltd Companies, LLP’s and PLC’s. The rentals on all quotes and contracts will be exclusive of VAT. If the business is VAT registered they can claim back elements of the VAT charged in the following way:- 50% of the VAT on the finance (Customer maintained) rental and 100% of the VAT on the Maintenance element (Fully Maintained Rental). The rental with the VAT deductions is called the effective rental and is the one to compare and to budget for as this is the effective cost of the vehicle monthly and across the contract term.

Personal Contract Hire

Personal Contract Hire is a contract hire product for private individuals. The rentals shown on all quotes and contracts are fully inclusive of VAT. This is the amount that will be deducted from your bank account and no deductions can be taken.

Pros and Cons with Contract Hire:-

 

Pros:-

  • Can be a cheap way to obtain the vehicle you need for your lifestyle or business needs.
  • Low initial outlay compared to Personal Contract Purchase/ Hire Purchase
  • Agreeable/flexible contract to fit requirements i.e Mileage, Length, Maintained/customer maintained.
  • Easy to budget for monthly costs
  • Off Balance Sheet for Business Users
  • Don’t have to worry about disposal 

 

Cons:-

  • If the vehicle is returned with more than the contracted mileage the finance company will charge an excess mileage fee for each mile over the agreed limit so it is important to estimate your annual mileage correctly
  • If the vehicle is returned with damage considered outside the BVRLA Fair Wear & Tear guidelines the finance company will charge for the damage caused. It is recommended to get an independent inspection prior to return of the vehicle. 
  • You will never own the vehicle
  • Early termination costs if you wish to return the vehicle early.

Finance Lease & Flexi Lease

Finance Lease

Finance Lease is a product for business users who will pay an Initial rental and regular monthly rentals a bit like Contract hire however the differences are that the vehicle is not returned to the finance company at the end of the contract. The vehicle has to be sold by the lessee to a third party to cover off the residual value that the finance company. This is sometimes referred to the balloon payment. If the Lessee wishes to continue the vehicle after the initial contract period they can agree this with the finance company for an agreed payment for the year called a peppercorn rental. The peppercorn rental is approximately the same as one of the regular monthly rentals however the exact cost will be provided by the finance company.

Like with Contract hire there are “Customer Maintained” contracts where all routine servicing and maintenance is carried out by the lessee and “Fully Maintained Contracts” where all of the routine maintenance is included within the rentals.

As with Contract Hire the rates found on all quotes and contracts will be exclusive of VAT and the user can deduct 50% of the Finance rental (Customer Maintained and Fully Maintained) and 100% of the Maintained element of the (Fully Maintained Contract). The amount after deductions is the effective rental which is the true cost monthly and over the total contract length to compare.

Pros and Cons of Finance Lease

Pros:- 

  • With a Finance Lease you have an agreed payment for an agreed contract term based on your estimated annual mileage. As the vehicle is not returned to the finance company if you travel further there is no excess mileage charge.
  • Perfect for vehicles where the business uses could cause damage outside of the fair and wear guide so will allow for flexibility of use without worrying about the return. 
  • A fixed resale value so the lessee knows how much they need to sell the vehicle for and any amount achieved above this is for the lessee to keep (Minus Fees). 

Cons:-

  • If you do travel more mileage then the contract mileage the actual value of the vehicle will become below that expected by the finance company so the resale value needed could be more than the vehicles worth (Negative Equity). If a deficit occurs the difference needs to be paid to the finance company by the lessee. 
  • If a resale value is achieved larger than the resale value (balloon) then the finance company will take a % of the surplus. 
  • The disposal of the vehicle has to be to a third party - The Lessee will not own the vehicle.

 Flexible (Flexi) Lease

A Flexible Lease is in essence exactly the same as the Finance Lease. The only difference is that the whole cost of the vehicle is spread across the full length of the agreement. This means that at the end of the agreement there is nothing else to pay. The vehicle still needs to be disposed of by the lessee to a third party. Any sale price is kept by the lessee minus any fees. If the lessee wishes to continue using the vehicle after the initial contract period they can agree with the finance company to use for a further year by paying a peppercorn rental.

There are again the choices of a Customer Maintained agreement where all routine servicing and maintenance has to be carried out by the lessee or a fully maintained contract where all routine servicing and maintenance is included within the rentals. The VAT deductions and effective rentals are the same as a Finance Lease 

Pros and Cons of a Flexible Lease

Pros:- 

  • As the total cost of the vehicle is spread across the whole length of the contract there is no worry about total mileage covered, no excess mileage charges and no hit to residual value.
  • Perfect for vehicles where the business uses could cause damage outside of the fair and wear guide so will allow for flexibility of use without worrying about the return. 
  • A Way to budget your vehicle costs for a fixed period
  • The resale value achieved will be retained by the lessee minus fees.
  • No Balloon Payment to aim a resale value on.

 Cons:-

  • The Lessee will not own the vehicle even though the full cost of the vehicle has been paid.
  • The payments will be higher on a monthly basis than a Finance Lease as the full cost of the vehicle is spread across the contract term.