CAR leasing enables you to drive a new car for a set period of time (usually three to four years) and over a set mileage (between 30,000 and 60,000 miles normally).
You pay a monthly rental agreed in advance and at the end of the agreement normally return the car to the leasing provider.
There are different types of lease agreements, depending whether you are a business (contract hire) or a private person wanting to lease (personal contract hire).
Here are what the main terms mean.
Business contract hire is a mid-term rental, usually over three or four years. It suits VAT registered businesses as 50% of the VAT can be claimed back on the rental. You pay a deposit followed by monthly rental instalments over an agreed period of time and agreed mileage. This is called the lease term and may be presented like this: 3+35/10,000 miles a year (three rental deposit followed by 35 monthly rentals at 10,000 miles pa). For more click on contract hire.
Contract hire and maintenance
The same as contract hire but with full running cost certainty provided by the maintenance element. Maintenance covers replacement tyres, servicing and replacement parts. Good for VAT registered companies as 100% of the VAT can be recovered on a maintenance rental. Click here for more on contract hire and maintenance.
Personal contract hire
Like contract hire but for private individuals. Essentially it’s the business contract hire price inclusive of VAT. Click here for more on personal contract hire.
Often called long term leasing, you pay a monthly rental with a final balloon payment, that will pay off the cost of the vehicle. This is usually equal to the cost of the vehicle at the end of the agreement. Because of the ‘balloon’ at the end of the agreement, monthly rentals can be cheaper than contract hire rentals. Click here for more on finance lease.
Short term leasing
Useful for when you want a car for a short period of time. Perhaps when a new starter is going through their probationary period. Usually a short term leasing period is for three to six months. In other words, like contract hire but over a shorter time frame. Click here for more on short term leasing.
Daily rental allows business users to hire a car for a day or more. If the car is used only for business use, then 100% of the VAT rental can be reclaimed. Click here for more on daily rental.
Car clubs or car sharing
Use a car by joining a car club.You only pay for the use of the car. Low cost method of providing mobility to staff. Click here for more on car clubs.
Sale and leaseback
For companies that want to move from owning their company cars to leasing their company cars. A leasing company values your company’s fleet of cars, pays you an agreed amount for them and then leases them back to you on contract hire and maintenance agreements. Click here for more on sale and leaseback.
Other forms of car acquisition
If want to read about other types of car finance produces – such as HP, lease purchase or personal contract purchase, go to our Car finance made simple page.