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What is Leasing and How Can It Help My Business?

By: Tom Butcher


What is Leasing

Normally, when it comes to innovation and the most advanced ways of doing something, businesses lead the way, making discoveries and challenging accepted ways of doing things which are soon adopted by the public sphere.

When it comes to saving money on cars and autos though, the public sphere definitely has a thing or two to teach businesses.

I’m talking about the growing popularity of personal leasing, and why leasing is perfect for businesses looking to save money on their auto costs!

What is leasing?

So, what on earth is it?

Leasing is a type of long term rental on an asset, which usually runs for between two to five years.

To put it simply, you choose an asset from a leasing company or an individual and you agree to pay a series of monthly payments for sole use of that asset over a certain period of time. In that time, you’ll be recognized as the registered keeper, rather than the actual owner of that particular thing. At the end of the leasing agreement, you’ll just hand the asset back to the company that you originally leased it from. That’s the basic principle of it.

When you first take out the lease, you’ll pay a sum of money that acts like a deposit, called the ‘Initial Rental.’ This is usually 3 to 12 times the worth of monthly payments up-front. You’ll usually pay interest and tax on the monthly payments too—but you’ll be able to claim these back if you’re a business.

What is Business Car Leasing?

There are a fair few different types of leases that are available in the auto finance market. Most, like Personal Contract Purchase and Personal Contract Hire, are geared towards consumers who want the car for personal use.

There’s good news for businesses though: business-specific leases exist and they can help a company save money on securing access to cars.

The type of lease that’s best suited to companies who want access to cars is called Business Contract Hire. This is essentially the same in principle as Personal Contract Hire, except it’s tailored towards businesses, giving you better rates and better services with the lease.

A typical Business Contract Hire lease

Business Contract Hire agreements are (as you can guess from the name) a type of contract hire lease. That means a lease arrangement where you rent an asset like a car for a period of time and then give it back afterwards.

In your contract, you’ll probably have to agree to a number of provisions, like mileage restrictions (designed to limit the depreciation of the car), getting the car insured at the best possible coverage level and having it regularly serviced at certain mileage intervals. How much your monthly payments are will obviously vary, depending on the length of rental, how much of an initial payment that you put down at the start of the lease and what type of car you’re actually leasing!

The benefits of leasing for a business

It works out cheaper than buying in many cases

One of the most amazing things about leasing is the fact that it often works out an awful lot cheaper than buying a car. That’s because when you lease a car, you’re actually paying off how much value the company you’re leasing from expects the asset to lose in the time that you’re using. You’re not actually paying off the full value of the car because you aren’t trying to get ownership of it, like you would in forms of car finance.

As a result your monthly repayments are going to be significantly cheaper with leasing!

It lets you get access to the latest cars, relatively cheaply

Another one of the key benefits of leasing is the sheer array of top-of-the-range cars that are available at pretty accessible prices. If you’re looking to get an Audi A4 Saloon, you’d be looking at a rough monthly payment of $389.31 Per Month for the lease of one. If you decided to buy one, on a hire purchase agreement, you’d be looking at monthly repayments of around $513.33.

You aren’t responsible for depreciation

Leasing obviously isn’t completely without financial risk, but this risk is massively reduced when you compare it to buying a car. Depreciation in value happens incredibly quickly to cars, with some estimating that vehicles will lose up to 60% of their value in the first year that they’re owned.

And that makes trying to recoup what you initially invested in a car very difficult when you come to selling it.

With leasing though, the fact that your business will never actually own the car means that you won’t have to worry how much it depreciates at all. It’s the owner’s problem, not yours!

You can better plan your business motoring expenses with a lease

A lot of business lease providers offer the option of maintenance packages, along with your lease, which cover the cost of the required services and pay for general wear and tear. The cost for this service is just spread over the monthly payments of the lease, helping you get a better handle on your cash flow from month to month.

I’ll let you make up your own mind if business leasing if right for your company. What do you think? Have you had a good or bad experience leasing cars for your business? Let me know in the comments below.

Published: November 2, 2018

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Tom Butcher

Tom Butcher is a freelance writer, covering a wide range of topics, including finance, business and motoring. At the moment, he is helping LeaseFetcher tell the world about car leasing.

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