Buying Versus Leasing
There are many advantages to leasing a car over buying one outright or taking out a finance package. See a summary below:
For Personal Users
• Leasing is the cheapest way to drive a new car – In most cases the monthly payments on a car leasing contract are lower than repaying finance on a purchased vehicle. Therefore as long as you’re happy to continue with a fixed monthly payment, you can drive a new car every 2-4 years without ever worrying about depreciation or loss of value. With less money going out each month and a new car always just around the corner, leasing is a very attractive option.
• No hassle part-exchanging or selling when you want a new car – Unlike when you are the registered owner of a vehicle, there’s no burden of having to sell or exchange the car when the lease agreement comes to an end. All you do is hand back the car and you’re free to decide what to do next whether that be enter another lease agreement or buy privately.
• No balloon payments at the end of contract – Often when the agreed finance repayment schedule finishes on a hire purchase car, there is a balloon payment due. This is a risk, as you don’t know what your finances will be like when the contact comes to an end. Leasing is easier as you don’t have to take a double hit by putting down a deposit and pay a lump sum at the end of the contract.
• Road tax is included – Road tax is included in your quoted monthly repayment figure and so you don’t need to worry about remembering to renew this.
• Maintenance gives you complete peace of mind – Unlike with a purchased car you have the option to bolt on a maintenance package which covers you for everything outside the manufacturer’s warranty. Maintenance offers complete protection; as you know the monthly rental rate is all you’ll ever have to spend on your car.
For Businesses Users
• Improved Cash Flow – There are huge cash flow advantages to leasing when compared with buying outright or using a hire purchase agreement. This is due to the fact that contract hire is essentially you paying to cover the depreciation of the vehicle during the time you use it. Conversely, when outright purchasing or taking on a finance repayment package, the full cost of the vehicle is repaid and no value is released unless you physically sell it on.
• Claim rentals as an expense – Uniquely with contract hire agreements, if the car has 130g/km or less CO2 emissions, you can claim 100% of rentals against tax. If the car is over the 130g/km, you are still able to claim back rentals against tax but the amount is limited to 85%. Compare this to owned cars on a finance agreement, you are only allowed to claim either 18% or 8% depending on the CO2 allowance.*
• Reclaim VAT - At least 50% of the VAT on contract hire repayments is recoverable. This is compared to zero if vehicles are purchased and have any private use at all. On maintenance plans which are available with leased vehicles, 100% of the VAT is recoverable.
• Reduce vehicle administration – All of the administration of the vehicle is handled by the leasing company, saving you a huge amount of capital on wages, training and record keeping.
• Higher Return on Investment - Contract hire cars are not counted as assets. Therefore your company’s balance sheet will show an immediate improvement in the “rate of return” on capital employed (via the asset value of the balance sheet being reduced).*
* Source: BVRLA