Company car leasing or contract hire is a popular funding methods for company cars.
Leasing company cars is mostly based on a variety of replacement cycles or annual mileage.
The traditional benchmark for measuring fleet running costs of three years/60,000 miles is now less typical in practice, with many seeking to run vehicles for up to four years.
The lessee benefits with a fixed cost, but there will be additional costs incurred from administration or unexpected maintenance.
The number of fleets choosing contract hire has remained steady in recent years although there has been a shift towards longer vehicle replacement cycles.
If a vehicle lease needs to be terminated before the agreed rental period, the customer is likely to incur penalty charges.
Charges may also be made for exceeding an agreed mileage or for any repairs that need to be made to the vehicle at the end of its lease.
As the monthly payments in contract hire are based on an expected value of the vehicle as the end of the term, it means the leasing company gambles on the rate of depreciation rather than the fleet operator.
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.
* 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.
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