Whether leasing a motorbike, car, van or truck the process can be a minefield even to the initiated.
We will take you through the various forms of lease & purchase, their pros and cons, the pitfalls of “Fair Wear & Tear” guidelines and how best to avoid trouble and needless expense.
Essentially, they calculate the difference between the original purchase price and the residual value of the vehicle in question. “Residual Value” refers to the worth of the vehicle at the end of the contract. The maximum length of a leasing contract is usually 4 years and the minimum 1 year. Very roughly speaking, a new vehicle can lose 30% of its value in the first year and, on average, and again very roughly speaking, 10-20% every year thereafter. It depends very much on the make and model of the vehicle etc. Some vehicles hold their value much better than others, so researching the market is time well spent.
Finance companies are able to calculate the residual value because the duration of the lease and the mileage permissible per year is fixed into the contract and the vehicle is expected to be returned in a condition in line with the “Fair Wear & Tear” terms and conditions of the given company. The older the vehicle, of course, the more forgiving the terms and conditions become.
Although it should be noted that wear & tear rules tend to be strict as it is another way for leasing companies to increase their earnings.
Purchasing vehicles outright for your company will improve image and please the employees. The vehicle will also be viewed as an asset that can be sold and the profit kept. The company will be responsible for repairs, MOT and servicing. However, it might not necessarily be the most cost effective way when taking into account depreciation, running/servicing costs and road fund licence charges. It will usually be more expensive than using an appropriate method of finance whatever the size of the fleet. Also, purchasing requires a large initial payment and if an employee leaves or you decide to downsize, the company is lumbered with the vehicle.
The trick here is to seek the best financing option through your own research and from sound advice from people you know and trust, such as Charmrace. We can help with all aspects of leasing, including finding the best leasing company that can fulfill your requirements, relieving the stress from your company with all those annoying automotive problems.
Business Contract Hire is the most straight forward and popular method of finance that companies choose, as it requires a minimal and negotiable deposit, followed by the monthly payments with no balloon payment at the end of the contract.
The more vehicles that are leased at one time from the same leasing company the more discount is warranted, the lower the initial and monthly payments can be, and can also help in negotiating the maintenance contract and the annual mileage into the bargain. Moreover, luxury vehicles become more accessible etc. However, whether it’s just one or more vehicles required there are always deals available and the VAT advantages remain the same.
A short-term fix for companies that need vehicles temporarily and at short notice for visiting employees or clients, for example, or as fill-ins whilst waiting for new or repaired vehicles to be delivered back to you. It is not the most cost effective solution for long periods, but the VAT is returnable.
This is a rarer form of leasing that not all leasing companies like to get involved with. However it is good for companies requiring a vehicle for 1-12 months, maybe to test a make and model before agreeing to a fleet of them. Or for probationary and visiting employees.
For companies that want to take control of the administration of their vehicles, and have the asset show on the balance sheet. A company can choose to pay the entire cost over the agreed lease period, plus an interest charge, paying reduced monthly payments over the period with a final “balloon” payment based on the anticipated “Residual Value” of the vehicle at the end of the term.
If your company already owns a vehicle, or a fleet of vehicles, the option exists to sell them to a leasing company and then your company leases the same vehicles back from the chosen leasing company.
In effect, your company receives an injection of cash, simultaneously relieving it from the fuss and expense of depreciation etc. Also, precise terms and details can be negotiated and tailored according to the merits of each circumstance.
This provides the disabled with the option of leasing a brand new vehicle, a powered wheelchair or a mobility scooter instead of collecting disability allowance.
Most main dealers are “Motability” registered as well as some of the larger leasing companies. All the benefits of regular leasing remain the same; fixed motoring costs, including maintenance and vehicle recovery options.
If you are disabled and don’t drive, yet would still like a vehicle, you do have the option of including two
named drivers on the vehicle. Unfortunately, Motability do not help with the insurance costs.
If you are considering a Motablity plan for yourself or a family member aged 3 or over, please visit
This system is aimed at VAT registered businesses, companies, partnerships, sole traders, individual businessmen etc.
The finance company actually owns the vehicle from the beginning of the contract and keeps it at the end.
The finance company will calculate the monthly payment on the basis of four factors:
The balloon payment at the end does not always equal the residual value of the vehicle as it can vary according to the amount of the initial payment, the make and model of the car and what the particular finance company will allow.
Once the contract has ended and the vehicle has been sold on to a third party, if the sale price is more
than the agreed balloon payment, then the finance company will refund some of the proceeds back to the company that took out the finance in the first place. Some leasing companies may also allow you to take out a secondary rental contract if you want to keep the car for another term.
Very similar to “Finance Lease”, but without the balloon payment at the end.
This method of leasing tends to be the most popular for its simplicity. Also, it accommodates for adjustments along the term of the contract. For example, you can lengthen the duration of the agreement before it expires. Or you can increase the mileage per year if you see that you are driving more than you originally thought you would. Most leasing companies have a choice of annual mileage from between 8,000 to 40,000 miles a year, but will specify an excess charge for every mile driven over the agreed mileage. This could be anything from a few pence per mile to a few pounds. It depends on the make and model of the vehicle and how much the extra mileage will affect the residual value of it.
A somewhat ignored method of injecting cash back into a business, however it seems to be gaining in popularity these days. It is only available to businesses that already have a fleet of company vehicles
whether it be a fleet of motorcycles, vans, trucks, cars or a mixture of the four, they can be sold to a leasing company and leased back from it, gaining cash and all the benefits of contract hire.
As with the other methods of finance, the monthly payment will be calculated according to the present value of the vehicles and the anticipated residual value at the end of the agreement.
Before you sign a rental contract, you must read it carefully. Some companies impose a daily mileage allowance, i.e. an amount of miles permitted per day.
On returning the rented vehicle, the rental company will thoroughly inspect it for any damage not covered by normal wear and tear standards.
Rental is ideal for a quick solution to transportation problems. But be aware that it can work out to be rather costly if you damage the vehicle or if you need it for a longer period than was otherwise calculated at the beginning. Short term contract hire can be a more cost effective solution.
In essence, it is very similar to personal and business contract hire except that the duration of the contract can be between one and twelve months only. It will certainly be more cost effective than renting for such periods.
As with other methods of leasing, it will be a fixed mileage contract that is agreed at the pricing stage of the quotation. Flexibility with short term leasing can vary from leasing company to company, but usually contracts last three, six and twelve months.
Effectively, this is where the buyer takes a loan either through their bank, a finance company or through the dealership from where the vehicle will be purchased.
Finance companies tend to offer a higher rate of APR as compared to banks, but dealerships are proving to be the most flexible and competitive, particularly the more established companies such as VW, BMW and Mercedes that have “in house” finance departments.
Once the appropriate vehicle has been found, a finance application is completed at the dealership and then sent off to a finance company at which point you will be credit checked.
If successful, the finance company will pay the dealership and you will pay the finance company on the agreed monthly basis. You will then be the registered keeper of the vehicle and the finance company will be the legal owner.
On the day the final payment is made you will be the legal owner of the vehicle.
This method of finance is the most popular for non-business use. It is similar to business contract hire in that they are both based on a fixed duration and annual mileage agreed at the time of quotation.
Rules regarding mileage amendments mid contract can vary depending on the leasing company. The monthly payment will alter relative to the changes accordingly, and may incur administrative charges.
If the agreed mileage is exceeded, there will be a charge per mile that varies depending on the vehicle and its residual value. So it’s best to give a good deal of thought to what your annual mileage will be before signing a contract.
Fixing motoring costs is the aim of most people looking to lease a car and adding maintenance to your monthly payment is a good way of achieving this. It generally includes servicing, batteries, tyres, exhausts and routine check-ups, i.e. water, oil, brake fluid, air-conditioning etc.
At the end of the contract simply return the vehicle in accordance with the leasing company’s “Fair Wear & Tear” guidelines.
This part of the contract is probably the most nerve racking. If there are dents, scratches and scuffed alloy wheels and bumpers beyond the acceptable ”Wear & Tear” guidelines, it could cost a tidy fortune. For example, a scuffed alloy wheel on a Ford Fiesta can cost anything from £55…and it’s rarely just the one! A scratch on a wing could cost anything from £350…the whole wing will have to be sprayed. The leasing company will always add its own charges to any work that needs to be carried out.
This method is useful to non-VAT registered customers and businesses that want to own the vehicle at the end of the contract.
One of the many good aspects to this product is its flexibility. You have the option, for example, to make a large initial payment at the start with a large “Balloon” payment at the end, keeping the monthly payments to a minimum. It can be tailored in a way to suit your finances…
As with all the leasing methods, the monthly payment is calculated through the difference between the retail value of the vehicle and its residual value or depreciated value that it will have by the end of the contract. So, choosing a vehicle that holds its value is better for you in the long run, in that the less the vehicle loses the better the deal offered. For this reason, Lease Purchase tends to be more popular for those that are interested in the more expensive, luxury end of the market.
This method is for private customers wanting a new vehicle in a cost effective, manageable and flexible way. Leasing companies use different names to describe this method such as Choices, Options and Drive Wise…
It is similar to Lease Purchase and Finance Lease, in that there is a balloon payment at the end of the contract, however there are options that are unavailable with the other methods:
With PCP, keeping the monthly payments low can be quite easy. As with the other methods, being as accurate as possible in estimating your annual mileage can make a difference. There’s no point in signing up for 12,000 miles a year when you will only do 8,000, for example. The Guaranteed Future Value, (GFV), residual value and the balloon are calculated using the fixed annual mileage as a factor. The more the estimated mileage, the less the vehicle’s estimated future value will be at the end of the contract.
Also, with PCP, most companies can increase the length of the contract to four and five years reducing the monthly payments and, subsequently, the balloon will be less too. And if you leave a larger deposit than the minimum required, this will also reduce the monthlies.
This is an area of leasing growing in popularity, particularly through main dealerships as they can give their own warranties and service packages, along with finance.
Any car can be leased in so far as a finance company accepts it as a viable risk and, the less mileage and the newer it is, the more likely it will be accepted.
Most used cars that are leased have either previously been leased and were returned before the end of their contracts, or have completed the full term and are still in enough of an acceptable condition to sell or to re-lease. In some cases there could still be some time left on the manufacturers warranty.
The broker, or customer, locates the desired vehicle and a price is negotiated based on the condition, age and mileage, as is usual. The finance company will then give the vehicle a thorough check inside and out and decide whether or not it is worth the risk.
Once the vehicle has been checked and the finance company agrees to take it on, all that will be left to do will be to decide the annual mileage to be stated on the contract, the duration of the contract and the method of finance. When all this has been decided and the contract signed, the vehicle will be delivered to you within a couple of days, usually.
Even an extensive professional inspection of a vehicle can miss deeper problems that a vehicle may have, so there is always a risk of inheriting an expense that had nothing to do with you. So there aren’t too many finance companies interested in used car leasing.
The cost of including maintenance into a leasing contract will vary depending on the make and model of the vehicle. Also, the duration of the contract can affect the cost too, but not by much. The average extra cost of including it in your contract is around the £25 mark, per month.
Generally, it is a very good idea to include a maintenance package into your leasing contract as you can never know what lies around the corner, or indeed, under the bonnet.
Even though brand new vehicles come with their own manufactures warranties etc. they will still need servicing, i.e. oil, water/anti-freeze, brake fluid, brake pads etc. etc. Every leasing contract over a year will need servicing and the leasing company will expect to see the service history when you return the vehicle, as will be stated in your contract
The leasing company will keep a record of the servicing, so you will not have to run around collecting paper-work at the end of the contract.
Usually, you will be given one telephone number to call for any problems that might occur to your vehicle.
An optional extra that can save you time and money. You never know when a puncture will strike…
The extent of this cover will vary from company to company. Some include road side puncture repair and some do not. Some companies don’t cover punctures at all. It is something to ask when the time comes.
Most companies that offer this cover will replace a tyre when it has worn to a depth of 2mm rather than the British Standard of 1.6mm, and offer a mobile tyre fitting service with the cover.
If necessary, we can arrange finance through either Close Brothers or Shawbrook Bank.
Charmrace can work out a maintenance plan for your particular choice of vehicle that can cover all the servicing, replacement of tyres and chipped and broken glass at very competitive rates. We can also include a courtesy vehicle while yours is being repaired.
As with all leasing companies, we will price your maintenance package according to the make and model of the vehicle and the length of your contract.
The advantage here is that you will have an experienced and mature team of mechanics that are Bosch Approved and have decades of experience between them, taking care of all your automotive needs.