Fleet leasing: funding your fleet

Many organisations choose to lease their fleet rather than selecting one of the other funding methods available.

Outright purchase remains the most popular method, but fleet leasing has its benefits.

In simple terms, it means the lessee does not own the vehicle and must return it at the end of the car leasing term, typically three or four years.

The lessee benefits with a fixed cost, but does take on the administration and operating risks, for example unexpected maintenance, repairs and losses in residual value.

However, while fleet leasing does provide an effective means of acquiring vehicles it does not automatically provide a fully inclusive service covering other important areas of fleet management such as maintenance, duty of care, compliance with legislation and environmental performance.

After the lease period expires, the vehicle is either returned or a deal is done for the lessee to buy the vehicle, often for a price agreed when the car leasing deal commenced.

But if you wish to end a fleet leasing agreement before the agreement has reached the end of its term, there may be penalties to pay.

There may also be a limit on the mileage the vehicle can cover for each year of the lease, which if exceeded could also result in financial penalties.

• Pros: low monthly costs and initial outlay; flexibility; and up to 50% of the VAT payments can be reclaimed.

• Cons: you will never take ownership of the vehicle as the car or van must be sold to a third party; risk of high interest rates; potential for additional charges; and focus on vehicle cost rather than wholelife cost.