Full disclosure, Vanarama is a vehicle leasing company – we think leasing is one of the best ways for small businesses to drive brand-new vehicles, but we're also aware that leasing might not be the best choice for everyone. That's why we've pulled together a list of the pros and cons of leasing so you can make up your own mind. Vanarama's Laura Day reports.
There's an old saying: "If it appreciates in value, buy it. If it depreciates in value, lease it." And that's not from us here at Vanarama, that's a quote from a famous oil baron called Paul Getty.
A brand-new vehicle is an asset that depreciates in value almost as soon as you drive it away for the first time – sometimes as much as 11% of the value disappears the second it has its first owner. By the end of the first year, that loss of value could be closer to 40%.
This is where leasing shines – instead of you owning a depreciating asset having dropped a lump sum of money on it, you lease it for affordable monthly payments and keep capital in your business.
Two sentences, one conclusion
The biggest benefit of leasing a brand-new vehicle is that you usually get far more for your money – you don't purchase the whole vehicle, you only pay for the depreciation.
At the end of the contract term, you hand the vehicle back to the finance company – having spent a fraction of the amount of money an outright purchase would have cost you – and choose your next brand-new vehicle to lease.
A simple example
Let's put this into figures – this is where the true pros and cons become clear. And, as we already said, while leasing may not be the right choice for everyone, the figures make it a very compelling choice.
Take a look at this example: if you lease a £20,000 vehicle for 3 years, and its projected residual value at the end of those 3 years is £12,000, then you will only make lease payments on the £8,000 difference.
If you had decided to buy the car outright, you'd be making payments on the entire £20,000. How does that sound to you?
Pros of vehicle leasing
- Low deposits, typically equivalent to 3 monthly rentals
- Choice of contract period from 24 to 60 months
- Hassle-free fixed cost motoring
- Free up capital – get a new vehicle without the up-front costs, freeing up money for you to invest elsewhere in your business
- Reduced risk – the risk of vehicle depreciation is eliminated. At the end of the contract, the vehicle is simply handed back without worrying about how much it might be worth
- Less administration – the finance company deals with all the buying, maintenance and selling issues
Cons of vehicle leasing
- You will need to estimate the time and mileage for the use of the vehicle.
- No option to purchase the vehicle.
- The cost to terminate the contract early can be expensive.
- If you go over the agreed mileage allowance, excess mileage will be charged for each mile over that is stated in the contract – this will affect the residual value of the vehicle.
- You must look after the vehicles and return in a well-maintained condition, if not you will be charged for any damage over and above what is considered "fair wear and tear".
At the end of the day, it all depends on what your long-term intentions are.
If immediate ownership is a must-have for you, you're better off buying. But if you want the chance to drive a brand-new vehicle EVERY few years for a very reasonable monthly price, leasing is the perfect solution.
What do you think about the pros and cons of leasing that we've listed above? Have we answered your questions, or are there more that you'd like to ask? Let us know in the comments below, or call us on 01442 838195 - we are always happy to help.