Although business car leasing has been popular for decades, there is a lot of confusion with the general public as to the real benefits of personal car leasing. Many people assume that it is not attractive for them as they will not actually own the car – and in a country where we love to be able to call things our own, this can be a particular stumbling block in the process.
However, more and more people have been taking up car leasing in recent years (the Finance and Leasing Association recently reported that UK dealers sold more cars in the first half of 2010 using leasing than traditional car finance). The following 2 points show just why it can be an attractive option for you.
1. Car leasing makes expensive cars much more affordable - one of primary selling points for people looking into leasing a car for the first time is that it can allow you to get a car much cheaper (based on a monthly payment) than it is to finance a car through a loan or hire purchase.
This is largely due to the fact that as you don’t own the car, and you’re driving it and only likely to keep it for 3 to 5 years and the finance company will sell the vehicle at the end of the lease contract for a residual value that it calculated when you entered in to the agreement. Therefore, you are effectively paying the finance company for the amount that the car depreciates across that term instead of paying to own the car. They will of course add interest on top but this explains why ‘high end’ vehicles such as an Audi are so cheap to lease because they depreciate slowly meaning that you will pay a lower amount to the finance company than a car that depreciates quickly.
2. VAT and maintenance costs are kept to a minimum - whenever you see company executives driving around, they’re generally doing so in a vehicle that is between 2 – 4 years old and nearly all of these are likely to be financed with business car leasing. There are two primary reasons for this. Firstly, with business car leasing companies avoid at least 50% and sometimes 100% on VAT. Another reason for this is the vehicles are typically less than 3 years old and under warranty and often have a maintenance contract. Consequently, maintenance costs are kept to a minimum.
Whilst the VAT reduction is only relevant for business car leasing, personal car leasing has the same maintenance and warranty benefits.
Therefore, car leasing can be beneficial for businesses and individuals and whilst it is much cheaper to lease a car (based on monthly payments) the biggest hurdle in making a decision will be overcoming the desire to own the car.