Business car leasing is almost certainly the preferred method for businesses to fund their company cars and fleet. However, for many small and medium businesses, the process of leasing their next car might not appear completely straightforward; this is something we hope to change with this guide.
Since changes in the UK's tax legislation (circa 1995) car leasing, by which we specifically mean Contract Hire, has grown considerably as the product of choice for businesses who fund cars as part of their fleet.
The changes in legislation enabled funders and finance houses to reclaim VAT on new vehicles. This means that competitive rates can be offered on a full suite of cars which, due to economies of scale and buying powers, can be purchased at particularly competitive rates for the customer.
While a business owner might perceive contract hire and leasing to be complicated, it is actually quite a simple process. In essence, this is a contractual agreement between a business and a finance company, whereby the business will use a vehicle for a fixed period of time i.e. 3 or 4 years. The contract will be based upon a fixed amount of annual mileage between the business and finance company.
At the end of the contract, the car will be collected from the business; there is no purchasing or ownership of the vehicle. The idea is that the car will be replaced by a new one.
Customer "A Ltd" wants to lease an Audi A4. A Ltd wants to use the vehicle for 3 years and on the basis of annual mileage of 25,000 miles. This information is provided to the team at CarLease UK.
Our account manager will then calculate the monthly cost of the vehicle based on those options; in this instance let's say it is £300 per month plus Vat with an initial payment (or deposit) of £900 plus Vat. This information is provided to A Ltd, together with proposal form (application for credit).
A Ltd completes the proposal form and returns it to his account manager, who submits this to the finance company. Once credit has been accepted, an order form is produced for A Ltd to sign and return. We will also ask for copies of a driving licence and utility bill of the signing director or proprietor.
Once the relevant proofs have been received, we will produce a series of documents relating to the arrangement i.e. contract, direct debit and vehicle delivery note.
When A Ltd has signed and returned these, delivery of the vehicle (included for FREE with all our prices) is arranged for a date which is convenient to A Ltd. The vehicle is delivered and A Ltd inspects the car to ensure that it meets his satisfaction; returning the delivery note to us when happy.
Around 7-10 days later, the initial payment (or deposit) which has been agreed between A Ltd and CarLease UK is taken via direct debit. Following this, regular monthly payments of £300 plus Vat are taken via direct debit for the next 35 months.
The market norm is to operate on the basis of three rentals in advance (known as a "3 spread"). Therefore if your monthly rentals are £300 per month (ex Vat) your initial payment (deposit) would be £900 (ex Vat).
In the alternative, where a Customer has additional monies, six rentals in advance may be chosen (known as a "6 spread"); the corresponding effect being that the monthly rentals will be reduced due to the heightened deposit.
However, there are a number of flexible options available to a Customer, all of which are set out below:
1. Terminal Pause - should a business take a 36 month contract, they will pay either 3 or 6 rentals in advance ("3 spread" or "6 spread"), followed by 33 or 30 monthly rentals, which are immediately followed with 2 months where no rentals are due before the end of the contract. Traditionally this was used to enable the Customer to utilise a rental holiday before leasing a new vehicle;
2. Spread Rentals - The normal payment profile in today's market. Should a Customer take a 36 month contract, they will pay 3 or 6 rentals in advance, followed by 35 monthly rentals with the contract ending on month 36; or
3. Enhanced Deposit - This is generally used when a Customer has a part exchange and wishes to use all of the equity they have in that vehicle. Should a Customer take a 36 month contract, they will pay an enhanced deposit in advance, followed by 35 monthly rentals and the contract will end on month 36.
• Low deposit options available – your business can control cash flow;
• Fixed period of car ownership ranging from 2 years to 5 years – you decide how long you, or the employee, require the car for;
• Option to include a maintenance package to cover servicing, maintenance and tyres i.e. "fully-maintained" car lease – simply want to fuel and insure the car? The let CarLease UK arrange the rest;
• Your business can benefit from 'fleet' discount levels – why pay more at the local dealer; and
• Above all, no depreciation concerns – if it increases in value, BUY IT and if is depreciates, LEASE IT!
• Choose your Car – take a look at our website, or visit your local dealership, and decide which car you want;
• Choose your Term – work our how long the business will need the car for; the minimum term is 2 years and the maximum is 5 years;
• Choose your Mileage – work out the annual mileage of the car and provide this with your enquiry;
• Choose your Maintenance – it is not necessary to include a maintenance package i.e. to include the cost of servicing, maintenance and tyres. However, it is often much more cost effective to include this into the contract; and
• Check you credit – car leasing is a credit based product. Please ensure you have reviewed your credit status before liaising with us. A limited company will require at least 2 years accounts and directors will need strong credit profiles. However, if you do have poor credit, please let us know and we will be happy to assist.