Car Leasing Versus Buying a Car
This is always the big question- do you contract hire lease or do you buy your car? Everyone is different however there are some fundamental questions you do need to consider.
With car leasing (or contract hire as it is sometimes called), you are renting the vehicle for the period and can be protected from the risks of ownership.
When buying, or using hire purchase, you will eventually own the vehicle.
So the main question is do you want to own the car (or van)?
If you are a small to medium size business then from a company tax perspective, whether you buy or lease, just remember that the lower the CO2g/km emissions of the car, the less tax you will pay. It is best to speak to your accountant for their advice on what’s right for your business however.
For a personal contract hire (personal car leasing) customer the tax situation is irrelevant.
So taking tax out of the equation, your decision should really be based on what the total life cost of a vehicle will be i.e. how much you are likely to spend on your car (or van) over the period you keep it for.
Total life cost of a vehicle – what should you consider?
- Firstly there are a number of items that are the same, whether you contract hire the vehicle, or whether you buy it.
- These include the insurance cost, fuel consumption (and cost) plus the taxable benefit implication (if this is a company car).
- The other cost items that you need to consider,if you are buying, are as follows.
- Vehicle Excise Duty (VED) – if you buy a car you will pay for the VED and if you contract hire, it is normally built into the monthly rental cost, so do take this into account as it can be quite a substantial annual cost.
- The amount of money you have to pay upfront. With contract hire leasing the initial rental is usually three months in advance. When you buy or hire purchase a vehicle you are either paying the full amount up front or usually a large deposit. Do you want to tie up all of your cash, or a large deposit, in a car?
- Servicing, maintenance and repair costs (including tyres, batteries and exhausts) also need to be thought about. How much will you spend on your car in three years or whatever period you are keeping it for?
- Finally depreciation as if you buy, you own the vehicle and it will lose money over time. The question to consider is how much the car is going to lose in value, as each individual manufacturer and specific model will perform differently.
- The contract hire leasing companies on this site have access to a large bank of information, on resale values and servicing, maintenance and repair costs (SMR), as this is how they calculate their monthly lease rentals.
- One of the partners who is working with Comparecontracthire.com is Fleet News (part of the Bauer Media Group), the UK’s leading motoring publication for the fleet industry.
- They have an excellent guide on their website to calculate estimated car running costs. Please note this is only a guide and you do need to check all estimated figures shown, via other sources.
- You can drill down to an exact model of choice or just look at a range of cars i.e. all Fiat 500s for example. It is really simple to use and you can get an idea of the future running costs of hundreds of cars.
- MRV is the residual value that they estimate the vehicle will be worth in the future, for whatever period and mileage you pre-select.
- SMR is the pence per mile calculation for each vehicle. So if the figure is 5p in this column and you travel 20,000 miles a year, your estimated annual SMR costs will be £1,000 per annum (20,000 x 0.05p).
- So once you have looked at the total life costs of ownership you can compare this to the monthly contract hire rentals you are going to pay and make a comparison.
- The final point is that contract hire car leasing offers you a fixed rental for the period and you are protected from the future loss in the value of the car. So if this appeals to you then car leasing might be right for you.
- There are a number of areas you need to be aware about with contract hire car leasing so do visit the business contract hire or personal contract hire sections on the site.
The link to the Fleet News Running Costs guide is:
- Please note that Compare Contract hire Ltd cannot be held responsible in any way concerning the accuracy of the above information.
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Car Leasing Versus Buying
Do you buy or do you lease? Well in the current economic times what's the point in tying up your hard earned cash in a depreciating asset like a car?
Whatever happens, rest assured a car will lose money over time. Car Leasing is an extremely convenient way of changing your old vehicle for a brand new one as the costs are fixed. You know from day one what the car leasing rental will be and therefore you can predict your future outgoings.
This is even more important as your fleet grows in size as before you know it the costs of owning a fleet of cars will mount up. You can also take away the extra worry of maintenance and servicing costs as well by building this into the fixed monthly rental, or add a relief vehicle if your car breaks down or is involved in an accident.
We have tried to show the items you will need to consider in the checklist above, before you make your decision to buy your car or opt for car leasing. However it is also recommended that you speak to your accountant to get their advice as well as it is an important decision for your company.