In business, as in life, everything costs money. Businesses rely on having the right amount of capital to run effectively and in profit. So, when it comes to acquiring a fleet of cars, what is the cheapest way to achieve that?
You have the options to purchase the cars outright, through car finance or through car leasing. The first two options leave you having to deal with the cost of depreciation and having to sell the cars. Car leasing takes that concern away making it suitable for businesses to acquire their fleets of cars.
What is car leasing?
Car leasing, also known as Contract Hire allows you to lease a car or cars for a set period of time at fixed monthly payments and a deposit. At the end of the agreement, you simply hand the car back to the lender.
Business Contract Hire works by you choosing a new or used car and deciding the duration you wish to lease it for. The length of these agreements usually last between 24-48 months, however, you can choose lease lengths up to 60 months.
For the length of the agreement, you must pay fixed monthly payments. The payments do not cover the value of the car but pay for the depreciation of the car’s value over the period of the lease. The amount you will pay depends on different factors.
- The size of the deposit you put down
- The length of the lease
- The annual mileage allowance
- Interest rates
The size of your deposit for each car comes in three different options. The larger the deposit you pay, the lower your monthly payments will be. The deposit you pay can equal:
- Three months worth of monthly payments
- Six months worth of monthly payments
- Nine months worth of monthly payments
Your annual mileage allowance needs to be decided for each car you lease. The higher the allowance, the more you will pay monthly. If you go over your stated allowance, there are additional charges per mile.
How will car leasing benefit your business?
The biggest benefit of business contract hire for your business is the lack of balloon payment at the end of the agreement, which is common on a Business Contract Purchase agreement. This means that as a business you aren’t spending additional money. You can simply hand the cars back without extra cost.
The fact that the monthly payments cover the cost of the depreciation rather than the value of the vehicle means they will be lower than any other finance agreement. This gives you the option of sticking with cheaper cars to keep your budget low across the fleet or you can stretch your budget further to get higher premium cars.
The fact you can easily hand the car back reduces the hassle for you as a business. You don’t have to worry about selling the cars or continually maintaining them. You just hand them back. You also do not have to pay road tax on the cars because you will not be the legal owners. The lender must tax each car for you. This removes the additional hassle of having to ensure every car in your fleet is road legal.
Should you consider car leasing for your business?
Car leasing is an excellent way of getting the cars you require at the lowest possible cost. Business Contract Hire is available on both new and used cars, giving you a whole range of suitable cars to choose from. You can choose a single car to use for your business or a larger fleet of cars and get them for cheaper than you would on other finance agreements such as Contract Purchase or Hire Purchase. Business car leasing could be perfect for your business.