The Car Lease Company
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Why Lease? - Finance Explained
To help you decide we have listed below the 3 most popular funding methods available for business users and private individuals. If you're still not sure, please call us to discuss your options further.
Contract Hire
The Car Lease Company.com specializes in this. This funding method is popular with any business that is able to reclaim VAT. The Car Lease Company.com calculates a residual value for the vehicle at the pre-set age and mileage, and chargers the user monthly rental to cover depreciation, plus a funding charge and add-on services such as maintenance and insurance. This way, the user takes no risk in ownership and has set monthly costs, and effectively pays just for the use of the vehicle.
Benefits
•Cash flow: rental covers the depreciation of the vehicle and not the cost. This releases capital for use in other parts of the business
•Rentals: monthly costs are fixed not variable
•Payments take into account future residual values, so the user doesn't have to repay the entire capital cost
•Accounting: vehicles are off the balance sheet
•Risk: administration and management costs are outsourced to a third party lessor >
•Management: beneficial to companies without an in-house fleet management department
Drawbacks
•Perceived inflexibility: can be hard on companies with a high staff turnover - early termination of the contract results in penalty charges
•Unlike contract purchase, option to buy price at the end of the contract is not fixed at inception
•Sale: generally no gain no sale, but no loss either
Contract Purchase
Popular with Companies running expensive, director-level cars costing over £20,000 plus those unable to reclaim the VAT portion of contract hire due to their restricted VAT position. Similar to hire purchase but the only way for some companies to enjoy the capital allowance benefits of purchasing without any residual value risk. It involves The Car Lease Company.com guaranteeing a pre-agreed value on disposal.
Benefits
•Tax: combines tax advantages of outright purchase with the cash flow and operational benefits of contract hire
•Outsourcing: companies can combine a service agreement to include maintenance, temporary replacement vehicles and insurance
•Risk: lessee carries no risk with the purchase
•Cash flow: monthly benefits cover depreciation like with contract hire
•Writing down allowances: 25% of the capital cost of the vehicle can be offset against tax each year up to a maximum of £3000 per annum
Drawbacks
•VAT: not recoverable unless vehicle is for 100% business use
•Balloon: unless the lessee pays the final payment at the end of the term, ownership stays with the lesser
Finance Lease
Popular with companies seeking a viable alternative to contract hire. Unlike contract hire, finance lease deals are not necessarily dependent on a predetermined vehicle life cycle and therefore residual value. It is more flexible than contract hire and so appeals to companies with wider variations in operating requirements. The lessee can pay back the capital cost of the vehicle, plus charges, over a set period, or pay a final balloon payment to reduce the monthly rentals.
Benefits
•Cost effective: small deposit and the option of a final 'balloon' payment
•Savings: rentals can be offset against tax
•Flexibility: user can decide when to cancel contract but will incur some early termination charges
Drawbacks
•Accounting: vehicles are on the balance sheet
•Risk: user bears risk of poor resale value at disposal
•Finance: no capital allowance for user