Companies provide different forms of car leasing. Contract hire is a popular car leasing option for both individuals and businesses who wish to do vehicle leasing. There is a regular monthly payment for the duration of the lease which can include maintenance and breakdown cover. This fixed amount allows you to plan your budget easily. The car is returned to the company after the lease a car contract has expired. Another benefit of car leasing is that there is no down payment on the leased car. This means businesses and individuals are not required to go into debt to afford a car or incur heavy interest rates from unpaid loans. A good way to pay for the car leasing is to offset the rentals against business profits. This usually allows for the VAT payments to be reclaimed.

Cars can be leased for the business customer by the financing company. This is known as a finance lease. The customer then pays the finance company a fixed monthly amount for the duration of the lease allowing him to use the car. The finance lease allows the car to be shown as an asset on the company balance sheet. Fixed monthly instalments including interest can be paid to the financing company over an agreed lease duration alternatively cheaper monthly rates can be paid but with a finance balloon at the end of the lease that is calculated on the cars estimated value.

The usage parameters for the vehicle leasing are established at the start of the contract and as long as they do not change interest rates and monthly payments do not alter. Potential customers should be cautious when paying lower repayments. This is because the balloon payment at the end of the contract may exceed the cars current value. Once the contract has ended, the business can choose to continue using the vehicle under a ‘peppercorn agreement’, involving an amount being invoiced annually in advance and needing to be paid annually until the business decides to sell the vehicle. During a peppercorn agreement you do not own the vehicle. If you choose not to use the car any longer it is sold off to a third party with you keeping any earned capital over the value of the car.

Contract purchase is similar to contract hire but allows the option for a vehicle to be purchased at the end of a contract for a pre-agreed price. Fixed monthly payments are made, which take into consideration the car’s cost, anticipated mileage and depreciation, and other maintenance and service options the client may choose to include. Contract purchase allows you the freedom to purchase the car if desired but also gives the freedom of allowing you to return it to the financing company.

In a lease purchase agreement you pay off the value of the car during the leasing contract with no option to return the car. The vehicle’s full value is paid via monthly rentals with a balloon payment at the end of the lease.