Search
Close this search box.
Sign up for our weekly Newsletter

Car leasing v car purchase

305_LeasingVPurchase
Business car leasing: access to new cars at accessible monthly rates

Share

12 August 2012

Business person considering car finance
Even if your finances are healthy, leasing can release capital as well as allowing you to focus on your core business

 

Report: RALPH MORTON

How’s your company’s finances?

Running an SME business really isn’t easy at the moment. And all those government initiatives  to help finance small businesses via the banks. Well. Have you been successful in securing any?

Quite. Anyway, back to my original question

How’s your company’s finances? Tick one of the following.

  • Healthy [ ]
  • OK [ ]
  • Requiring finance to expand [ ]
  • Requiring finance to exist [ ]

If your company’s finances are healthy and your business is cash rich, and if you purchase your own car for business as well as your staff’s company cars, then you might want to stop reading now. Especially if you are securing good discounts from a dealer – or you have manufacturer terms if you buy a lot of company cars –  and you feel confident about getting a good price when you sell them.

If that’s not the position of your small business, then read more.

One funding readily available

Here’s the first good reason to consider business car leasing (which is also known as contract hire, by the way). It’s an additional funding line. There’s no drag on your overdraft or other lending facilities.  Given how difficult it is to attract finance for an SME, this has to be a GOOD THING.

Two smoothed monthly cash flow

Second, car leasing vs purchase is less capital intensive than choosing HP (hire purchase) or contract purchase (CP). With HP or CP you are paying for the full cost of the car, so your monthly outgoings are higher. It may also require a higher deposit.

That’s not the case with contract hire, where monthly car lease payments are lower because you are only paying for the depreciation of the car over the time and period that it’s leased, and the finance that has been supplied.

And that usually means you can afford a much better car with a business car lease because the monthly outgoing is reduced.

Three – get on with life and your business

What do you do? Run your business or run a car purchase operation? If you buy cars you have to negotiate terms with a dealer, arrange the finance, and then later on sell the car.

I’m not suggesting you don’t have to negotiate terms to get the right business car lease, although there are plenty of offers in the market: choose your car, choose your spec, and then choose the supplier that suits your business. But once in place, you pay the monthly lease and hand the car back at the end of the term. No selling or managing cars ‘in life’.

You business requires 100% concentration: business car leasing can help you do that.

Four – get some VAT back

Try getting VAT back on an HP or CP agreement. Well you can’t in most situations. But you can with a contract hire business car lease.

OK, it’s not the total amount (unless your business car is used exclusively for business purposes – and very few are, so let’s dimiss that one). But 50% of the VAT levied on the monthly finance can be reclaimed.

Five not only VAT, get some tax back

You can get capital allowances for your company car purchases. Which is really handy. What’s not so good is the amount of time it takes to reclaim that. If you buy a company car with CO2 emissions of 160g/km, then you can claim 18% capital allowances on a reducing balance basis. Ask yourself how long that will take? (Note: from April 2013 the tax break reduces to 130g/km.)

With a business car lease you get 100% of the lease as taxable allowance on your profit and loss account – as long as the CO2 emissions are below 160g/km. That’s immediate. (Note: again, from April 2013 the tax break reduces to 130g/km.)

Now, Paul Hollick  – who is the sales & marketing director from leasing company Alphabet – might well have reasons of self interest to support business car leasing. But, when I spoke to Paul about car leasing versus car purchase, he did make this very good point.

“In healthier economic times, before the banks pulled the plug on a very large slice of SME company car financing, the tail risks of outright purchase were, if not necessarily financially justifiable, at least affordable,” says Paul.

“But today, surely the lower-risk method of acquiring company cars through lease financing is the sensible and correct way to fund business vehicles.”

If your SME business could do with some additional financial  muscle, then business car leasing is certainly worth exploring – it’s additional finance without affecting our existing credit lines.

A few key points about car leasing

  • Easy to budget your monthly expenditure
  • 50% VAT recoverable on lease
  • Improved cash flow
  • Minimal capital expenditure
  • Gap insurance (optional)
  • Fixed interest rate
  • Less hassle – you don’t need to become a used car salesman
  • VED included
  • Less administration for your company

Expert commentary from Fleet Alliance on car leasing v car purchase

“As the article suggests it’s not just about the money and the credit lines – leasing can make life more simple!

Martin Brown

“SMEs should pass the “car problem” – or is it challenge? – to their leasing provider and focus on their core business.  A professional leasing provider will also offer strong fleet management software which could well allow an SME to manage all of their vehicles effectively in one place.

“Another advantage a business car leasing provider can bring to your party is competitive tendering. This ensures you get the best funding deal for the car you want from a range of funding providers.

“So, it can save you money, make life more simple and free up credit lines.  Business car leasing provides a solution worth assessing for SMEs.”

Martin Brown, managing director of fleet solutions provider, Fleet Alliance

  • Click here to read about a real life example comparing leasing with purchase.

Share this article

Facebook
Twitter
LinkedIn
WhatsApp
Reddit
Email

Want more motoring news?

Sign up here for our free weekly serving of motoring.

Sign up here for our free weekly serving of motoring.

Matt Morton

Matt Morton

Matt Morton is an automotive content writer for Business Car Manager

Latest news

Top