Car Leasing – The Benefits and Pitfalls

Car Leasing is fast becoming the funding method of choice for both small businesses and private users alike. Even if the concept isn’t fully understood, the attraction of ordering a car without having to visit numerous dealerships and simply having it collected from your door at the end of a fixed period is proving to be immense. But what are the real benefits of car leasing and are there any pitfalls?

Making It Easy.

The main benefits of car leasing, as already mentioned, are related to the fact that the car is never owned and effectively hired on a long term basis. This means that you simply hand the car back at the end of the contract without having to worry about the market value and how to sell it. When a maintenance contract is added, car leasing becomes a fully inclusive package with the road fund licence, servicing, maintenance, tyres and breakdown all included in the monthly payment.

Saving Money.

Most manufacturers will offer bonus money to the car leasing company so that the purchase price is a lot less than if the same car were bought outright personally – this way car leasing can also work out cheaper than ownership and suffering the depreciation yourself. Traditionally there is also a smaller deposit needed with personal car leasing.

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Tax Benefits.

For small businesses there are also very lucrative tax benefits to car leasing especially if the car is chosen with the CO2 emissions and list price kept in mind. Being VAT registered also allows you to reclaim half of the VAT on the finance element of the lease and all of the VAT on the service element.

Pitfalls.

There are, however, a few aspects of car leasing to keep in mind. The main fact is that it is a fixed agreement and it is more difficult to change the car early. Most car leasing companies will charge around 50% of all outstanding rentals if you want to hand the car back before the end of the contract, with some charging as much as 100%!

The other main pitfall in car leasing to watch out for is the excess mileage charge. If you hand your car back with more miles than on the agreement, the car leasing company will charge an excess mileage charge. Whilst this is not usually a punitive charge and is costed at around the same rate had you agreed to the mileage driven from the start, it can still come as a shock if you’re not expecting it.

Lastly but often the main worry is the damage charge the car leasing company will make at the end of the contract. This however is largely an exaggerated concern as all car leasing companies in the UK adhere to the guidelines of the BVRLA (British Vehicle Rental and Leasing Association) who ensure that there are fixed wear and tear guidelines and that no car leasing company can charge unfairly. Your broker should be able to supply a copy of these guidelines on request.