Leasing is more popular with the business customer. However, it appears to be growing in use for the personal customer also.
It makes most sense for the business customer, as the payments are 100% deductible as a revenue expense in the Profit and Loss account. Therefore, it is particularly "tax-friendly" for companies and the self-employed. Legal ownership of the vehicle remains with the finance company or leaser. Most leasers require a 10% deposit or one to three months down-payment which will then be deducted at the end of the contract. A lease basically allows you to rent the vehicle for a fixed monthly cost. The monthly cost is determined by the value of the vehicle, the projected depreciation of the vehicle and interest.
At the end of the contract, there are generally three options.
1. With a standard lease, the vehicle is returned to the leasing company, who will sell it to a third party. You will be free to pick a new car and negotiate a new lease.
2. You can extend the terms of the original lease by paying a nominal annual rental fee.
3. If you decide you want to keep the vehicle, you need to negotiate a purchase price with the lesser based on depreciation and resale value.
Leasing companies can and do impose costs for excessive wear and tear of the vehicle, such as damage to the body. These will be extra costs to if outlined in the leasing contract. All leases have mileage limits and anything in excess of these limits will incur a per mile cost. The general advice is to be absolutely sure you want to lease prior to entering into an agreement.
Contract hire is a hybrid of car leasing. A monthly payment is calculated, and worked out on the differing value of the vehicle at the start of the contract and an estimation of what the value will be at the end of the contract (residual value) after the depreciation has been factored in. Very often there a limit on the amount of mileage you can have with a contract hire agreement and there are usually penalties attached if you go above the amount as the residual value is calculated on this limit. The term is only applicable to the business customer since the VAT can be claimed on 50% of the entire payments made and 100% of the repair charges.