For many people, four wheelers are representatives of their social status; a symbol of a luxury that they can afford. And then there is this other group of people for whom the ownership of the car does not matter, as long as it is of service. If you belong to the second group of people, then leasing a car is probably the best possible option for you.
Car leasing will ensure long-term availability of the car of your choice on a monthly rental basis,and all you need to do is to pay that on time and try and keep the car in its current condition by the end of your contract. In this way, you have a brand new car to drive around, but at themuch lesser price and even lesser commitment.
Below here is a detailed guide to car leasing and all your questions answered in detail.
What is car leasing?
When you pay a certain deposit at the beginning, you are leased a car for the specific time period for which the leasing has been agreedupon. Car leasing is no more difficult than renting out a house or furniture. The person renting something has to pay an initial amount, which is the down payment for the item you are leasing and is usually in multiples of the monthly payments that are to be made. Then you have to go on paying a previously fixed amount of money every month to continue the leasing, and at the end of the period, the leased item goes back to its lawful owner. The same procedure is followed in case of a car.
You hire a car on lease by making an initial amount and continue making monthly payments to hold on to your lease. However, the amount and method of payment vary from agent to agent, so it is always better to ask them individually before deciding on the lease.
In case of failure of down payment or monthly payments, the customer might be confiscated of the car or any other debt collection procedure that the agency follows.
How popular is car leasing in the UK?
Car leasing is not a very popular practice yet in the United Kingdom, but it has been catching on thanks to decreasing rate of monthly payments and also much lesser amount to be paid at the beginning than the down payment required for buying the car. Also as company cars are sometimes provided to employees for work related issues, they can be used for calculating tax on employee’s company car.
What is the detailed procedure of car leasing deals?
The entire process of leasing a car is explained here in detail.
Budgeting and choosing: The choice of car will depend on your budget and need of the car. If you need it for daily rough use, then leasing a hatchback car will be much more profitable since they come at a cheaper rate than the SUV or luxury cars.
Before deciding on the type of the care, do a thorough research of the leasing deals out there in the market and the make and model of the cars that are being leased; and then match them against your budget and the monthly amount that you can afford. A bit of information will help you finalize which car you want and for how much money. If you plan to go for a 4X4 vehicle of premium cars like Mercedes or BMW, it will obviously cost you more( you should get more information about vehicle tax before making a purchase decision) Otherwise, there are lease deals starting from as less as £99 per month which should suit you fine.
- The leasing deal: The leasing deal is the entire contract of the lease everything included – the down payment amount, the period, the monthly rent and all other details. Before finalizingof the leasing deal, you not only have to decide on the car but also on the mileage. While deciding the mileage, do not be a miser since you will have to pay extra at the time of handing the car back if you cross the mileage limit. Leasing deals usually cover road tax and breakdown provisions in the contract. However, before the finalization of the leasing deal, you will need to be financially approved,and your credit score will be checked based on your past credit history to decide whether you can afford the car for the said period or not. After drawing up of the leasing, the car leaser will get started on the leasing process.
- Initial Down payment:The initial deposit you have to make at the beginning of your lease is the down payment for the leased car. In most cases, the amount of the contract stays fixed,and thus, if you make a higher down payment, your monthly rents might be less; and if you pay a lesser amount at the beginning, you have to make bigger payments every month. In this case, the down payment amount is calculated and written in the order form as multiple of the monthly rent amount. But in some other agencies, they have the amount fixed, depending on the car and not flexible for the customer to decide. In those cases, the definite amount must be paid for legal handing over of the car for the specific period. The down payment on the car is non-refundable,and you can pay it while renting the car or at the time of handover, depending on your payment method. In some cases, the customer is allowed a time of one week to ten days to clear the down payment after the delivery of the car.
- Time period of lease:Car leasing can be of short-term basis or long-term basis. Long term car leasing contracts usually are of two years to four years at one stretch. Short term car leasing can be 28 days or one month, three months, six months or one year.
- Payment method: Different agencies have their preference regarding the payment method. For the initial down payment, be it a fixed amount or a multiple of monthly rent, you can either pay by debit card – in which case it has to be paid before the delivery; or you can pay by direct debit or bank transfer – which you need to pay after the delivery of the car within a stipulated period. However, it is always preferable if you clarify any doubts regarding payment and payment methods with your leaser or broker before finalizing the leasing deal.
- Delivery of car: After the lease deal is finalised and you have placed the order of the car and made payment (in case you are paying before), you might have to make an extra payment of a processing fee. This is usually an amount of around £150 – £200 for the follow through of the new car and bringing the deal to thetable. Soon, the car should be handed over to you with necessary papers along with your contract form and any other related document to the whole leasing procedure.
What happens once the contract period is over?
Once the time specified in the contract for theleasing of the car is over, you have to hand the car back over to the leasing agency by the due date. If the car is in good conditions, then the transition should go smoothly and not be a problematic one.
However, in case you have crossed the pre-determined mileage limit, then you will be charged an extra amount which can vary from 3p to 10p to even 50p for some models for each mile extended. You will also have to pay if the car has scratches and dents or some extra damages over and above the average wear and tear depreciation considered by the contract.
The agency will be looking for a new customer to lease out the car and they cannot make aprofit if the car is not in top class conditions. So it is for you to keep the leased car in more or less proper state, and if you have failed to do so, the agency will definitely charge you for that.
What if you want to continue using the car?
The leasing agency may or may not agree upon extending the contract. So in case you have such plans, it is advisable that you contact the company one or two months before the contract ending date so that you can strike up a negotiation about it. If the company has a better deal for the car, they might disagree to continue.
But if they agree for you to continue using it, you might be eligible for some discount in the whole contract value since the car is some two to four years older now and has gone through certain rate of depreciation. Have a detailed discussion with the agency about the renewed rate of contract; because if you don’t get any cut on the rent, then it is a loss for you to continue using it since you can use a new car at the same rate anyway.
What are the advantages of leasing a car?
Here are some of the reasons why you should consider leasing a car:
- With leasing, you can easily afford brand new cars, even the upmarket makes, and models at a price much cheaper than the actual purchasing price. So you get to use a spanking new car but pay way less for it.
- Another reason for the growing popularity of car leasing is while buying a new car; most people take help of a car loan extended by their bank of offered by the car company franchise. The interest on that loan makes the final amount spent on a car much more than the actual price of the car. With leasing, since the ownership of the car is not changing, there is no need for a permanent payment, and only the down payment and monthly rents suffice as the cost incurred.
- With a leasing contract, the car is under the manufacturer’s warranty for the term of the deal, which means if you have not bumped the car, then the agency is responsible for fixing anything that goes wrong with the car, and you do not have to spend a penny for that.
- Similarly, any servicing or breakdown is included in the deal,so you do not need to pay for them separately; same applies for road tax. It is much less headache to maintain a car when everything is taken care of below one roof.
- VAT reclamation is a great incentive for leasing a car. If you are leasing it for business purpose and if the business is registered under VAT then you can keep the leased car off your balance sheet and deduct the cost of profit. This way you can reclaim 50% of the VAT. For other business allowable expenses you can consult with our counsellors for free consultation.
- The biggest plus point of leasing a car is – it is not your responsibility. Sure you are to keep it in more or less proper conditions because you will be charged at the end of the term if it is not. But the degradation in the car’s value or the availability of servicing or spare parts – all these issues are never really your problems because you will be giving it up at the end of the contract anyway.
What are the disadvantages of leasing a car?
Car leasing is not all hunky-dory,and it has got some cons of its own.
- The primary drawback is you do not get to own the car at any point of the contract. The legal ownership will always belong to the leaser; you will just be renting it for the specific period.
- There are certain changes implemented by the government which will be in effect from April 2018 on capital allowances for business cars. To know more about capital allowances, you can read our blog or contact our counsellor for free consultation.
- Limited mileage is another limitation of car leasing. You will constantly have to keep an eye on the number of miles you have driven and the number of miles you have left according to the contract. As soon as you cross the line, it will cost you money per mile.
- You do not own the car,and yet you will be liable if the car is written off and the insurance value is less than the value set by the leasing company after your term period has expired.
- The same thing goes for damages. Even if you don’t mind dents and scratches, you will be the one paying for them if the car has any.