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Car Contract Hire Leasing -
Short Car Leases
- How Car Leases Work?
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Contract Hire Car Leasing -
How Do Car Leases Work?
Car Contract Hire Leasing can
be a tempting alternative to buying a car outright for some motorists. One
benefit is being able to drive a car which may potentially be beyond your
buying power.
In addition, the lure of driving a brand new car every couple of
years can be tempting. At the end of the lease period, the car can be returned
and a new model selected. Thus you can avoid having to sell the previous car
on, and the issue of
vehicle devaluation becomes the dealer's concern, not yours.
Generally,
car lease payments are lower than car loan payments in that
the
rate of interest is usually more favourable.
Added to this there is the peace of mind in driving a car within the
manufacturer's warranty period. An initial deposit, generally three months
payments, is required followed by a set monthly amount. Qualifying for this
type of finance is usually easier than for a straightforward
car loan.
Another benefit is that road tax may be paid by the
car lease company (applicable
in the UK).
Factors Influencing Car Lease Price
Prices vary but are linked to
variables such as the age of the car. Other factors include the initial
purchase price, condition and residual value of the car.
Residual value is the expected value of your car at the end of the lease
period. The difference between the purchase cost and residual value has an
influence on the cost of lease payments.
The Difference Between Car Lease and Contract Hire
Contract hire differs from car leasing in that it is basically
long-term rental. Most come with a maintenance and repair plan as an extra
monthly cost. There is a pre-agreed mileage with penalties for exceeding this
figure.
VAT registered companies favour this option for its tax advantages, as a
proportion of the tax can be claimed back.
With short car leases, the driver has the option to buy at the end of
the lease period for a price agreed at the time the lease was taken out. This
price, or 'balloon payment', amounts to the minimum projected cost of the car
at the end of the term.
Alternatively the leasee can return the car to the company at the end of the
period. The customer is liable to pay charges associated with any damage to the
vehicle incurred and, as previously mentioned, fees if the car has been driven
over the pre-agreed mileage. A higher mileage allowance can be negotiated at
the time of signing, but this will increase the car lease payment.
Car Lease Maintenance Contracts
When considering leasing a vehicle,
one decision that has to be made is whether to include a maintenance contract.
This would cover all repairs for an extra monthly fee. Those motorists who
drive a high annual mileage, say over 20,000 miles, would likely benefit from
maintenance cover. Equally, if the warranty on the lease car runs out during
the term of your lease, then a maintenance deal might be beneficial.
Car Leasing - What You Need to Know
Many
car lease contracts require
you to take out
GAP car insurance, as the person taking out the lease is liable for the
cost of the car if it is written off or stolen.
On return of the vehicle any extra fittings, such as a mobile phone kit, must
be removed. Incidentally, permission needs to be obtained from the lease
company first for any alterations you may wish to make to the car e.g. having a
tow bar fitted.
Normal wear and tear is acceptable, but any damage must be rectified. This can
be undertaken by yourself or left to the lease company to fix and the cost of
repairs charged to you. The latter could well prove to be the more expensive
option.
There is usually a penalty for terminating the contract early. Depending on the
agreement this can be anything from 50% to 100% of outstanding
car lease fees.
As with any signed agreement be sure to read the terms and conditions carefully
before sealing the deal.
Further Resources:
