Your business needs a vehicle. But not just any vehicle. It has to be the right vehicle.
The right car or van is essential to keep your operations running smoothly. And, let’s be honest, you also want your vehicle to carry with is a certain sense of prestige. Whether you’re a self-employed electrician or a freelance consultant, you only want your brand to be associated with the very best.
But when it comes to financing the car or can of your choice, there are so many options to choose from that it can be somewhat bamboozling.
Do you buy the vehicle outright?
Or do you take out a finance lease on the vehicle?
Or do you lease the vehicle on a Contract Hire basis?
The answer will depend largely on your circumstances, but we find that Contract Hire and Leasing are often the better choice for business owners who need to keep their cash flow manageable and their options flexible.
Leasing is an umbrella term used to describe a number of long-term vehicle rental options. However, when people refer to vehicle leasing, they’re usually talking about Finance Leasing. Finance Leasing gives you many of the same benefits as ownership, without the overhead costs and obligations.
When taking out a finance lease, an arrangement is made with the leasing company (lessor) to pay a rental fee for use of the vehicle throughout the length of your contract. Most finance leasing contracts last between 2 and 4 years. At the end of the contract period, the vehicle is essentially sold back to the lessor to reimburse them an agreed amount.
A final ‘balloon’ payment is also agreed to be paid at the end of the contract. When the hire period draws to a close, you the vehicle is sold back to the lessor and the proceeds are used to pay the balloon payment, ending the contract. However, the agreement can be extended by increments of 12 months at a time.
While this arrangement can be repeated as many times as you wish, as the years go by and the wear adds up the vehicle will be gradually devalued meaning that less of the final balloon payment will be covered by its eventual sale.
Leasing offers the freedom to use the vehicle as you wish without the expense that comes with buying it outright. You can put your own logo on it and make any modifications necessary to suit the needs of your business.
Wear and tear is less of an issue under a finance leasing agreement, and lessees are free to treat the vehicle as their own.
Leasing arrangements are also beneficial for cash flow projections. The amount that you pay for the finance lease is already agreed between you and the lessor, and payments remain set for the full term. So you need never have to worry that monthly payments will change and disrupt your cash flow.
Leasing options (including Contract Hire) are especially beneficial for VAT registered businesses. Lessees can claim back 50% of the VAT on passenger cars, and 100% of the VAT on vans.
Because there are fewer restrictions on mileage and wear to the vehicle, this is a good option for businesses looking for a vehicle to use as a workhorse.
A Contract Hire agreement (also known as an Operating Lease) is a leasing option that’s available on carsand vans. It is open to sole traders, limited companies and partnerships. Under a Contract Hire agreement, the car or van of the lessor’s choice is leased for a set time period at a fixed monthly cost. The agreement will also include a maximum mileage allowance.
The monthly rental fee is based on a number of factors, including the original cost of the vehicle, the length of the contract (again, usually 2-4 years) and mileage that the vehicle is expected to cover. The final monthly cost will also include an allowance for depreciation by the end of the agreement.
Contract Hire agreements will also usually include an optional maintenance package for oil and filter servicing, brake fluid changes etc.. While these are not compulsory, they usually make financial sense, unless you have a good relationship with an existing garage you trust.
As in any leasing arrangement, the lessee never owns the vehicle, and the car or van is returned to the leasing company at the end of the agreement.
It’s important to note that under a Contract Hire agreement, you are expected to return the vehicle to the lessor in more or less the same state as you got it (within the realms of reasonable wear and tear, of course).
This video explains a little more about how Contract Hire works.
Why is Contract Hire beneficial for businesses?
The great thing about Contract Hire is that it provides an affordable way to get the business vehicle of your dreams at an affordable price without crippling upfront costs that could put a stranglehold on your cash flow. Monthly rental payments are manageably low and they remain the same throughout the length of the contract. So you can plan accurate cash flow projections without needing to worry about hidden or unpredictable costs. And the VAT advantages (50% on cars, 100% on vans) are the same as any leasing option.
One of the primary advantages (aside from cost) is flexibility. You can lease a single vehicle or a fleet of vehicles on a Contract Hire basis. And you have a range of options, not just in terms of vehicle choice but in terms of the duration of the contract. You can adjust the length of the lease and the included mileage to create an agreement that meets your operational needs while keeping costs manageable. And when your lease period is up, you can move onto a brand new vehicle, so you always have an impressive car or van to lend your brand a sense of prestige and pride.
Optional maintenance packages mean that you are free to choose whatever means of servicing and repairing your vehicle are the most cost-effective for you. And because the vehicle doesn’t belong to you, you don’t even need to worry about the residual value of your car or van.
Ultimately, Contract Hire is the most stress-free and affordable way to get access to the vehicle you want without it showing as an asset on your balance sheet. Costs are fixed and affordable and terms are flexible enough to suit your needs. So you can focus on running your business without needing to worry about your vehicles.
Many different kinds of businesses can benefit from a Contract Hire. However, here are some tips to help you to get the most value for money from this leasing option;
Take the time to study the terms of the contract
The better you know the terms of your lease, the more you can avoid incurring charges for unintentional violations such as charges for early termination or fees for excess mileage.
As well as studying the terms yourself, make sure that they are communicated to every member of your team who has access to the vehicle.
Learn the parameters of “reasonable wear and tear”
Reasonable wear and tear can be a tricky term. Your idea of what is considered “reasonable” might not be the same as your lessor’s. This is why it’s so important to familiarise yourself with guidelines on what qualifies. Again, this should also be communicated to anyone on your team who has access to the vehicle.
Choose a realistic mileage allowance
In order to get the maximum value out of your lease, it’s important to be realistic about your estimated mileage throughout the length of the contract.
While it may be tempting to undershoot on your estimated mileage to secure a cheaper monthly payment, this can come back to bite you if you exceed the mileage specified under the terms of your agreement.
Still not sure about what Contract Hire or Leasing options are best for you? Don’t worry. That’s where we come in.
We have an outstanding selection of vehicles available to lease, from sleek executive saloons to powerful off-road vehicles. With a huge range of makes, models and body styles, you’re sure to find a vehicle that’s a great fit for both your business needs and your brand image.
More importantly, however, we pride ourselves on our dedication to outstanding customer service. Whatever your needs, we promise to be honest and caring in our approach- helping you to make the right informed choices on behalf of your company without trying to bamboozle you with technical jargon.
Simply put, we take care of everything to do with your vehicle, so you can focus on doing what you do best. Running your business!
Get in touch to learn more today!