How Does Car Leasing Work?

More and more people each year are opening their eyes to leasing, allowing them to drive a new car without a huge upfront cost.

Car Leasing

We understand that car leasing can seem confusing, so we want to try and help answer any queries you might have to ensure you understand why leasing is such a good deal, so let’s start with the basic pro’s and con’s!

Pro’s

  • Enjoy a new car every few years
  • Maintenance costs can be included
  • More car for your money

Con’s

  • Your monthly cost is based on mileage
  • You don’t own the car
  • You must return the car in good condition

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Lower start up costs:

Advantages of Contract Hire:

  • With contract hire, you avoid having to pay the full cost of the vehicle up front, so you don’t use up your working capital or have to borrow
  • No need to worry about an overdraft or other loan being withdrawn at short notice due to changes in bank policy or personnel

Why not to purchase outright:

  • You pay the full cost of the vehicle up front out of working capital, or debt finance, which adds to the cost
  • Banks can withdraw overdrafts and loans at short notice and demand early repayment
  • It may take longer to source and administer the purchase

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Cash flow advantages:

Advantages of Contract Hire:

  • With a contract hire vehicle, you only pay for the vehicle over the fixed period of time that it is needed by you
  • Easier to forecast cash flow as rates on monthly rental costs are usually fixed
  • The cost can be spread over the lifetime of the vehicle

Why not to purchase outright:

  • A small business is gambling that it will not need the capital for the medium and long-term
  • The cost cannot be spread to coincide with money coming in to the business

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Tax efficient:

Advantages of Contract Hire:

  • Opportunity to reduce your tax bill by deducting the cost of lease rentals from taxable income
  • For companies that either do not pay tax or pay at the small company rate, the 100% tax allowances of lease rental are normally more beneficial than capital allowances for outright purchase options

Why not to purchase outright:

  • You are unable to take advantage of the tax benefits of deducting the cost of rental from your taxable income. However can deduct the interest payable on any loan used to finance the vehicle

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Lower fleet costs:

Advantages of Contract Hire:

  • Maintenance and other vehicle management service items can be written into lease or contract hire contracts
  • The risk of depreciation is carried by the leasing company
  • The leasing company can usually obtain better discounts due to their greater purchasing power.

Why not to purchase outright:

  • A small company has limited bargaining power and knowledge regarding the potential discounts available
  • You are responsible for the maintenance and servicing of the asset
  • All the risk (e.g. Depreciation, maintenance etc) is taken by you.

Get in touch

Please contact Pedigree Automotive Solutions with any requirements you may have.
We are happy to arrange a no obligation quotation for you.

Request a callback:

Contact Details:

Pedigree Automotive Solutions Ltd
21 Shaftesbury Avenue
Burton Joyce
Nottingham NG14 5GL

Registered in England and Wales #5010253
ICO Registration No. #Z8457388