How do I know if car leasing is right for me?

Are you the type of person who likes to change their car every few years … ?
If so, then ask yourself a few simple questions:

• How much did you spend when buying your last car?
• How long did you keep the car for?
• How much did you sell the car for?

To work out roughly how much your last car cost you per month, let's do some simple arithmetic:

[what you spent] minus [what you sold it for] divided by [number of months you owned it]

Of course, you'll also need to add the cost of any road tax that you had to buy during the time that you owned the car and work out how much interest you paid out (if you took out a loan), or how much interest you lost (if you took the money from a savings account).

And the costs and inconvenience don't end there; when you finally sold the car, how long did the process take and much did you spend on advertising. Even worse, if you part-exchanged your car, how much less than the market rate did the dealer offer you.

On balance, when you add everything up – the costs, the hassles, the inconvenience – and you look at what you could have leased for the same money or less, you have to ask yourself: "why on Earth would I ever buy a car again … ?" Still not convinced … ? why not read "A typical new car buyer's journey" below:

Contract Hire and Personal Contract Hire (PCH)

One of the most popular forms of car leasing in the UK is Contract Hire (including Personal Contract Hire), which is available to both business users and consumers (private individuals).

Contract Hire offers most of the benefits of car ownership, but without many of the hassles; in essence, you hire a brand new car for a fixed period - normally two or three years - at a predetermined annual mileage allowance to suit your needs.

Contract Hire is a simple and very cost effective way to fund any number of vehicles. Simply choose the vehicles you want, we deliver your new car to your door and you pay a fixed amount every month.

These payments go on for an agreed period of time, usually between two and four years. At the end of the agreement, the vehicle is collected from you (which is then sold back to the motor trade). You can then choose another vehicle.

Importantly you never own the vehicle, the finance company does. As it never appears on your balance sheet, it remains a business expense. Because the finance company take the vehicle back, we agree up front the mileage your drivers will do on an annual basis and the number of years the contract will run.

Using this information, we calculate how much the car will be worth at the end of the contract, which is factored into your monthly payments.

A typical new car buyer's journey

So, how do you go about buying a new car … ?

Well, your quest might start by taking a look at a manufacturer website for a car that you've seen advertised or that drove past you in the street one day.

This is normally followed by a visit to your local dealership, so that you can see the car for yourself. Of course, not wanting to be "taken for a ride" - so to speak - you'll want to compare the price that your local dealership gives you with one - or even two - other dealerships, just to make sure that you're getting the best price.

Finally (and certainly for the more tech-savvy) you'll want to shop around online, just in case there are better deals somewhere out there in cyberspace. So, although it has taken some time and considerable effort, you're somewhat satisfied that you're getting a good deal, so you buy your new car.

But whether you buy the car with money from a savings account or you take out a loan to cover the cost, you'll need to factor interest into your calculations, not to mention road tax (for as long as you keep the car) and depreciation (which is the difference between what you bought your car for and what you will sell it for in the future) when working out your motoring costs.

And the headaches don't stop there; after happily motoring along for 2 or 3 years, you're ready to change your car again. You've already decided on your next new car, but, you have a problem: How do you dispose of your current car … ?

Naturally, you could advertise your car for sale online or in the newspaper, but you'd really prefer not to have strangers coming to your house. Besides (given your hectic schedule), weekends and evenings are sacrosanct - quality time to be spent with your family; you'd rather not waste your precious time haggling with "tyre-kickers" over what they think your car is worth.

And what's the alternative … ?

Well, leasing a new car could be your answer. With used car values falling year-on-year, coupled with an uncertain economy and rising household bills, the growing risks associated with new car depreciation have forced car buyers to look at cost-saving alternatives.

And being the most advanced car leasing market in Europe, the UK has no shortage of leasing companies, whose expertise is in buying hundreds of thousands of new cars every year and recycling them back into the increasingly voracious used car market at end of contract.

More often than not, if you're looking to change your car regularly (say every 2 or 3 years), car leasing works out less expensive than ownership, because not only are you tapping-into the buying power of the big leasing companies, you're also removing the costs and hassles of selling your car when you're ready to change again.

An even more compelling reason is that you don't even need to hunt from dealership to dealership, as the best leasing rates can often be found online, at a time that is convenient for you – day or night.

And it's the convenience and the ability to manage your motoring costs more effectively – coupled with the cost saving benefits – that are leading to unprecedented levels or personal car leasing in the UK.

Why choose Contract Hire?

There are many reasons why Contract Hire is so popular:

• Off balance sheet funding
• VAT efficient
• Fixed costs for the contract period
• Removes uncertainty of residual value fluctuations
• Reduced administration
• Detailed reporting is provided
• Car leasing contracts are available with or without maintenance (which covers routine maintenance and servicing costs)
• Support services are available including fuel cards, accident management, and full roadside assistance

What are the negatives?

• Your new vehicle will be on a contract based over a certain length of time. If you decide that you want to change your car for any reason before the end of the contract you will need to speak directly to the finance company.
  Usually they will offer an option to buy out before the end of the contract. The reason they do this is that all your rentals are based on calculations made on the vehicles value at the end of your contract.
• Not estimating your mileage right. If you under estimate your mileage you will be charged a fee per mile that the car has exceeded the contract mileage by. As this is usually only a few pence per mile it is not often an issue.
  However if your estimate is out by thousands of miles those pence can add up.
• If you own a car you can treat it how you like. The finance companies expect the car to be looked after well as any damage will have an impact on the vehicles resell value.
  A fair wear and tear guide can be requested from the BVRLA.

Low monthly rentals

There's no large initial outlay and monthly payments are fixed, so it's good for cash flow and makes budgeting a cinch.

You pay a fixed monthly rental and – at the end of the contract – hand the car back to the leasing company with nothing to pay (provided that the car meets the mileage and condition criteria agreed at the start of the contract).

Hassle-free motoring

So you don't have the hassle of selling the car when you replace it. It also means you don't have to worry about the risk of falling used car values (known as residual values). If the second-hand car market drops suddenly, that's the leasing company's problem, not yours.

Who will supply my new car?

All our cars are supplied through official franchised dealerships; we don't supply imports or used cars.

Will my new lease car come with a warranty?

Yes, all our new lease cars are supplied with a full UK manufacturer's warranty.

What is the initial payment?

For business-users, a minimum of one rental in advance is possible (subject to credit approval), but typically an initial payment equivalent to 3, 6 or 9 regular monthly rentals is required. Sometimes larger initial payments can be made if required, which will lower the regular monthly rentals. The initial payment is not a refundable deposit.

Does my monthly lease rental include car insurance?

Contract Hire and Personal Contract Hire (PCH) lease contracts do not include car insurance; your new lease car must be covered by a fully comprehensive insurance policy for the duration of the contract, which is your responsibility to arrange.

Can I put a personal number plate on the car?

There will normally not be a problem. Be careful with contract hire and any agreements where the vehicle is registered in the name of the finance company. Make sure that you have their agreement and their confirmation that they will transfer the number back to you at the end of the agreement.

How will my monthly payments be collected?

All monthly rentals are collected by Direct Debit.

My car is financed on a personal contract hire agreement. What happens if the car is accident damaged, to the point of being written off by the insurance company? Am I liable for any shortfall in value?

What normally happens is the insurance company will negotiate directly with the leasing company. Different companies have varying policies. We recommend that you check with the company concerned.

How can the car leasing companies afford to offer such low priced special offers? Surely most of these cars would depreciate more in value per month than the monthly rentals payable?

Due to the bulk purchases that the car leasing companies make large discounts are often given thus reducing the initial cost and therefore monthly rentals payable. These savings are simply passed onto the customers, but you have to be quick, because they don't last long!

Why do some prestige models cost less to finance per month than certain more common cars, which cost less to buy initially?

The monthly rentals payable are calculated considering many factors. These include the purchase price, the mileage agreed and the future predicted value of the vehicle (residual value). If the residual value of certain cars is far higher than other in its class, despite the fact that the purchase price maybe higher the monthly rentals may be lower.

Payment Profiles Explained

You can read more about payment profiles to give you peace of mind. Please note that initial payments always form part of the total rentals required (they are not a refundable deposit).

Fish Car Leasing is a trading name of Emotor Consultants Limited.