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280 – When is a lease not a lease?

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26 August 2009

Business owner baffled by leasing questions

Confused about leasing options? We should be clearer about rentals and finance payments says reader Robert Wastell

Deferred payments and rentals

ROBERT Wastell writes: I received Issue 58 of your e-newsletter yesterday and it looks really good.

One article you have featured is on car leasing ‘Should I lease or contract hire?’ from Vesource.

I am not sure I agree with their interpretation of the six methods of “car leasing”. Hire purchase, lease purchase and personal contract purchase are not leasing – they are forms of purchasing or buying a car or van.

Personal contract hire, contract hire and finance lease are forms of leasing – ie they are rentals.

The FLA has a site called “financing your car” which explains the difference. Or your Knowledge Bank has plenty of good articles on each of these finance and leasing methods. The difference between buying and renting also helps to explain why VAT is applicable to a rental but not to a payment.

Robert Wastell, www.CompareContractHire.com

Editor’s comment: Thank you for your note Robert. You are strictly correct: hire purchase (HP), lease purchase and personal contract purchase (PCP) are forms of deferred purchase – you end up owning the car (should you choose to do so with a PCP); whereas personal contract hire (PCH), contract hire (CH) and finance lease are forms of rental – you operate the car for a period but don’t own it.

My reading of the article was that, in reality, many business owners see monthly payments of any sort as ‘lease payments’. It is certainly how I see the PCP payments we make on our Fiat 500 – a form of using the car although we don’t intend to take ownership of the car at the end of the finance period. The article strove to explain that contract hire was one form of paying for a car’s use on a monthly basis. But your point is well made. Perhaps we should be more careful – or clearer – in our explanations in the future.

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Ralph Morton

Ralph Morton

Ralph Morton is an award-winning journalist and the founder of Business Car Manager (now renamed Business Motoring). Ralph writes extensively about the car and van leasing industry as well as wider fleet and company car issues. A former editor of What Car?, Ralph is a vastly experienced writer and editor and has been writing about the automotive sector for over 35 years.

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