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Car Leasing Guide

All Important information that you need

Below you will find information about Car Leasing for Business and Personal use.

You have probably already heard about business contract hire as a form of vehicle acquisition. But is it the right option for you and your business, as a sole trader, SME or larger organisation as a way of funding a fleet?

Contract Hire is ideal for all types of companies, including partnerships and sole traders, that are VAT registered. The popularity of leasing has grown significantly over the years and it is now the most popular form of funding cars and commercials for business users.

Business Contract Hire | Explained

Contract Hire is an agreement between an individual or a company to ‘hire’ a vehicle over a pre-agreed fixed term. There is an annual mileage limit and clients can choose to take out a maintenance agreement if they wish.

At the end of the contract, the vehicle is returned to the funder and the client is free to take out another lease vehicle or take a different motoring journey. There is no option to buy the vehicle when it goes back.

Contracts are usually known as ‘Spread’: this means that the first payment of, say, 6 monthly rentals, is classed as month one. This is followed by 23 for a 2-year term contract or 35 for a 3-year contract (hence the term ‘spread).

A ‘Terminal Pause’ contract has a payment ‘holiday’ at the end of the contract that is equal to the number of payments out down at the start of the lease. This allows for the client to ‘save’ for the first payment of the new vehicle that they wish to replace their current one with. Terminal Pause contracts are rarely advertised nowadays but are available upon request and are still a popular choice with larger fleet operators.

Benefits of Business Contract Hire

  • Fixed cost motoring that allows for accurate budgeting
  • Tailored contracts to suit budget and requirement on new vehicles
  • New vehicles benefit from modern technologies that help reduce fuel costs and increase safety
  • Low initial outlay compared to some other forms of vehicle funding, typically between 3 and 9 payments in advance, payable at the start of the contract
  • Flexible solutions for contract terms to suit requirements, typically between 1 and 4 years
  • 50% of the VAT can be reclaimed on the monthly rental amount for VAT registered companies
  • 100% of the VAT can be reclaimed on the monthly service and maintenance element
  • Servicing and maintenance packages are available to help fix the total cost of motoring (not inclusive of fuel and insurance)

Business Contract Hire Quotations

It is important to compare quotations on an ‘overall cost’ basis as more payments that are put down initially reduce the monthly cost. Fewer payments will increase it. In the unlikely event that you feel our advertised price has been bettered by a different company, ask one of our Team about our ‘Best Price Guarantee’.

Business Contract Hire | Frequently Asked Questions FAQ’s

Will I get charged for damage when I return my car?

If you have looked after your vehicle and returned it free of damage then the answer is no. Customers have an obligation to make their vehicles available at the end of the term for inspection. Acceptable fair wear and tear such as small stone chips and light scratches are taken into account by the funder, also keeping in mind the client’s annual mileage.

Please don’t hesitate to ask one of our Team for a copy of our fair wear and tear and vehicle hand-back procedures – it varies from funder to funder and we will be happy to send across the details to you by return for your perusal and total peace of mind.

Can I cancel my Business Contract Hire agreement?

Early settlement terms and conditions are detailed in your contract hire agreement. Usually, there is no rebate allowance if you decide to hand the vehicle back less than 12 months into any agreement. After 12 months, rebates may be available, but policies will vary from funder to funder. Please speak with a member of our team regarding this concern or refer to your agreement before signing as early termination can sometimes be costly.

If you require a flexible agreement, Business Contract Hire may not be the ideal option for you, mainly due to the way it is calculated and how the monthly rentals are worked out based on forecasted vehicular depreciation ‘sliding scales’.

Will I get charged if I exceed my agreed contract mileage?

Yes. There will be a pre-agreed excess mileage clause from the outset. Excess mileage is charged on a ‘pence per mile’ basis. If you are under the mileage allowance, there is no refund unless you have a pooled mileage agreement which is usually only for larger fleets.

Taking out a higher mileage contract is not usually as costly as you may think, however, so if you do more than ‘average’ miles, please don’t hesitate to request a bespoke quotation from Egon Car Leasing – you will not be ‘penalised’ by a leasing company for travelling more than 10k miles per annum any more than if you owned a car outright.

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Personal Contract Hire, often referred to as PCH, is a great way for individuals to acquire a vehicle on a VAT inclusive long-term hire basis that is very similar to that of Business Contract Hire.

Personal Contract Hire | Explained

At Egon Car Leasing, we understand the need for you to fully explore whether Personal Contract Hire is suitable for your requirements – with this in mind, it is our mission to make sure that we provide you with all you need to glean a full understanding of this type of car acquisition.

Personal Contract Hire hugely is popular with company car drivers wishing to opt out of their company car schemes across the UK, opting to take a cash allowance instead.

Personal Contract Hire | Frequently Asked Questions FAQ’s

Is Personal Contract Hire right for me?

If you are looking for reasonably priced, fixed-cost motoring that you can tailor to suit your budget and mileage, PCH is a great form of funding. You make the same costs repayment each month on a vehicle of your choice.

The good news is that often, sought-after cars that you may have considered as being out of your price range, have good residual values which result in lower rentals!

Personal Contract Hire gives you the choice to put down a low initial outlay; you can choose your own initial payment and contract term, usually between 24-48 months.

VAT is included within your monthly rental and you can also choose to take out a servicing and maintenance package which often work out very reasonably when considering the bulk discounts that funders secure for their fleets. This effectively takes care of all your motoring costs, except for fuel and insurance.

The first payment – classed as ‘1’ payment – consists of months that are added together, i.e. 3, 6 or 9 months in advance. There is no refund at the end of the contract for these months unless you choose to customise your PCH agreement in this way. The higher the initial payment, the lower your rental will be.

Some clients opt for 1 payment down which is an option, particularly for those of you who have a history of ‘good credit’.

Will Personal Contract Hire penalise me for exceeding the average annual mileage?

In a word, no. Under the terms of a Contract Hire agreement, there will be an excess mileage clause, which sets out excess mileage from the outset. This is charged at pence per mile and is not a ‘penalty’ clause as such – it exists to redress any difference that extra mileage has cost in terms of the resale value of the contract vehicle.

If you settle your agreement early, mileage is calculated pro-rata and if you return the vehicle under-mileage, you do not get a refund for miles not driven.

Many of Egon Car Leasing’s clients do well in excess of the average annual mileage and do not find that the contract hire monthly amount is excessive – in fact, in most cases, PCH is an extremely affordable way of driving a brand new, efficient and reliable vehicle!

Will I get penalised for any damage to a vehicle that is taken out on a Personal Contract Hire agreement?

If you damage a car in a manner that does not fall under ‘fair wear and tear’ and do not repair it as you would with a car that was owned, for example, then you will be invoiced for damage.

If you make repairs to any contract vehicle you can make a claim with your insurance company as you usually would.

Funders do not set out to penalise anyone for damaging vehicles unnecessarily – for full details of what is classed as fair wear and tear and vehicle hand-back procedures, please don’t hesitate to ask one of the team at Egon Car Leasing and we will forward you the documents appertaining to your chosen finance company.

Can I terminate a Personal Contract Hire agreement early?

If you do not feel that you are able to commit to the term of the contract, we would not recommend PCH as the ideal agreement for you. Perhaps PCP or finance would be more suitable, in which case please chat to us about these methods of funding and we will be happy to help you secure a great value deal.

The reason for this is that it is usual that no rebates are due if you want to hand the vehicle back before you are 12 months into the agreement. After this time, settlement rebates may be available – often there is between 20%-50% discount on the outstanding rentals plus outstanding excess mileage. This, however, is not always the case and may vary from funder to funder.

Please refer to your agreement and don’t hesitate to ask us if you have any queries prior to signing, as early termination could prove costly.

What is the difference between Personal Contract Hire and leasing and is it different from PCP?

Personal Contract Hire is often be referred to as (Personal) Leasing. Although this is a popular reference, a vehicle leasing agreement is not quite the same as Personal Contract Hire.

Vehicle lease agreements are not available to personal users in the U.K. – Finance Lease Is available to Business Users only.

Individuals can enter into a Lease purchase or PCP agreement, however. This is a VAT inclusive finance agreement, working on the same kind of principals as a lease agreement but it is a regulated (or unregulated) finance agreement by the Consumer Credit Act 1974.

How will Egon Car Leasing protect my personal data?

The Team at Egon Car Leasing takes our Privacy Policy very seriously. This includes your personal data.

Your information is only used to help us provide you with information about our services and to keep our records up to date.

You are entitled to request a copy of the personal information we hold about you and we will not disclose your personal information outside Egon Limited without your permission to do so. However, we may supply information to Police forces and central government if required to do so, in full compliance of the Data Protection Act.

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Unlike Contract Hire, Contract Purchase gives you the option to buy the vehicle at the end of the agreement at a pre-agreed figure the it set out initially.
This is a more flexible method of leasing as you don’t have to decide what you wish to do with your vehicle until the end of the contracts. Hand it back, extend the contract or buy it – the choice is yours.

Contract Purchase | Explained

Contract Purchase is a finance agreement that gives you lower monthly payments than traditional Hire Purchase, where you pay off the full capital balance. The agreement will either be Regulated or Unregulated under the Consumer Credit Act.

Affordable payments are made possible by the way in which this agreement is calculated. The vehicle is finance and the predicted minimum future value is deferred until the end of the term. This is based on the deprecation element of the vehicle and can be referred to as a Guaranteed Minimum Future Value (GMFV), balloon payment or option to purchase figure.

How is Contract Purchase financed?

Affordable, fixed cost motoring can be tailored to suit your budget and miles per annum, resulting in more straightforward budgeting.

Acquiring a new vehicle via Contract Purchase often works out as being far more cost effective than financing older, more dated vehicles. You can take advantage of latest new vehicle technology, reducing fuel and still saving by keeping your monthly payments as low as possible.

You could be surprised at the savings you can make and could be driving a new car for a lot less than you think with Egon Car Leasing!

Contract Purchase | Frequently Asked Questions FAQ’s

What is the usual Contract Purchase contract term and initial down payment?

Contract Purchase Plans are usually fixed between 24-48 months; short period contracts are not available.

Initial payments can be without any deposit contribution or they can be tailored to meet with a deposit to suit your requirements. The higher the initial payment is, the lower the monthly payment will be. It really can be your call (subject to acceptance)!

Documentation fees charged by the finance company are usually payable by Direct Debit when signing or they are sometimes collected at the same time as your initial payment; all of the information is detailed on the final documentation.

What options do I have at the end of a Contract Purchase agreement?

As we briefly touched upon at the start of our Contract Purchase Guide, you have different options that are available to you at the end of your contract term.

You can arrange to sell or part exchange your vehicle to meet the GMFV – any monies achieved that are over the end amount payable to the finance company are yours to keep and perhaps put towards your next car.

You can also choose to purchase the vehicle at the end of your contract for the Guaranteed Minimum Future Value – this may attract an option to purchase fee (this will already be detailed on your agreement). The option is still open to you to re-finance at this stage if you wish!

The end value is always a conservative estimation, set to be below the anticipated vehicle resale value from the outset. This is guaranteed as part of your Contract Purchase agreement which means you will know the very least amount that your vehicle will be worth at a point in the future.

What happens if I choose to return my Contract Purchase vehicle over the agreed mileage?

If you terminate the agreement over your agreed mileage allowance, an excess mileage charge will apply as per your agreement with the funder at the outset. This is charged at pence per mile.

With Contract Purchase, you also have the flexibility to choose to purchase the vehicle if you wish to as an alternative at the GMFV.

If you settle the agreement early, mileage is calculated pro-rata and if you are under the mileage allowance, no refund is given.

How will Egon Car Leasing protect my personal data?

The Team at Egon Car Leasing takes our Privacy Policy very seriously. This includes your personal data.

Your information is only used to help us provide you with information about our services and to keep our records up to date.

You are entitled to request a copy of the personal information we hold about you and we will not disclose your personal information outside Egon Limited without your permission to do so. However, we may supply information to Police forces and central government if required to do so, in full compliance of the Data Protection Act.

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Leasing is a broad term and it is true that lease, contract hire and long-term vehicle rental agreements are often all put into the same category. Finance Lease, however (some dealers call it operating lease), is different.

At Egon Car Leasing, we strive to ensure that our clients are fully informed of all vehicle funding options available to them; with this in mind, we have put together a Finance Lease Guide to help explain exactly why this could be a viable car or van acquisition method for your business.

Finance Lease | Explained

Finance lease is not an agreement like contract hire where you send the vehicle back at the end of the term.

If you are a business that would like to have some equity stake in your cars without the high monthly costs of hire purchase or buying outright but would still like a low monthly amount like contract hire, finance lease could be a consideration for you.

Payments are subject to VAT (currently allowing 50% VAT reclamation) and rentals are allowable against tax – at the same time, there is no resulting company capital being tied up in a depreciating asset.

Is Finance Lease right for you?

Finance Lease is a cost-effective option of acquiring a new vehicle and is suitable for all types of VAT registered businesses.

Although Finance Lease is an excellent solution for all vehicles, it is a particularly effective way for savvy Fleet Managers to fund vehicles that depreciate quickly, like vans and hardworking commercials, or cars that cover high annual mileages.

How does Finance Lease work?

Lease agreements let your business use a vehicle without ownership, yet it still offers the returns of any asset value achieved from the sale, or most of the sale proceeds less a percentage to the finance companies in some instances.

At the end of a Finance Lease contract, the customer must sell the vehicle on to a third party with the idea being to retain up to 98% of the sale proceeds, depending on the residual value that has been set at the start of the contract.

There are not a huge number of companies that advertise Finance Lease when you look at the sheer number of advertisements that can be found online for contract hire.

This is because it is a contract that requires an experienced company to put together the right package for you.

Initially, your designated executive at Egon Car Leasing will tailor-make quotations for you based on information that you have given us and agree a term and residual value.

At the end of the contract, you can arrange to sell the vehicle or request our assistance to help you with this process – the sale proceeds are offset against the residual value. If the sale proceeds are more than the final value, then the balance is yours to keep.

Finance Lease – vs – Contract Hire

Here are some reasons why Finance Lease could be a great alternative to Contract Hire for your business:

  1. Affordable, fixed-repayment motoring that’s tailored to suit your budget and annual mileage and preferred term.
  2. Low initial outlay – you decide!
  3. 50% of the VAT is reclaimable on your monthly rental, 100% is reclaimable on commercial vehicles.
  4. You get to keep the majority of any profits realised from the sale at the end of the Lease.
  5. Vehicle lease payments are rentals so they can be offset in full against tax in full or part, depending on what the vehicles are used for.
  6. Finance companies offer low rates to help encourage the uptake of Finance Lease transactions (they benefit from written down allowances as vehicle owners).
  7. The Finance Company also funds the vehicle less the VAT, lowering the balance and monthly payment to the customer!

Are there any risks associated with Finance Lease agreements?

If your end residual value is set up realistically, then you should find that your risk is minimal.

However, all risk is ultimately yours – if your drive more miles than originally anticipated or your car is damaged for example, your car may well be worth less and you are liable for the difference if there is a shortfall.

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