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Garry Harrison-Lea's blog: 21 December - Get what you bargained for with your vehicle lease contract
Date: 21 December 2015
There are numerous considerations to be taken into account when buying a new vehicle - and not least among these is how you choose to pay for it.
Buying outright has its benefits, from the vehicle being financially unencumbered to its use or modification also being unrestricted. An outright purchase will often prove financially prohibitive however, making a hire or lease arrangement a more flexible and affordable option.
But buyer beware, selecting the right finance deal can depend upon receiving appropriate advice from a reputable broker. A little due diligence in this process can certainly help to ensure you don't get your fingers burnt.
Contract hire, a fixed monthly cost arrangement that removes vehicle costs from the company books, is generally the most popular funding option. There are alternatives however, notably contract purchase, lease purchase and finance lease deals which can be more appropriate depending upon personal circumstances and requirements.
Finance leases are worthy of a particular mention - they will not be for everyone but can be a VAT-efficient method of finance and can be good option for those running high mileage vehicles.
A finance lease will usually involve paying fixed monthly rentals with a balloon (final balance) set at the end of the primary funding period. In contrast to contract hire, mileage is not stipulated on a finance lease contract and this is where danger lurks. It can leave the selling of finance leases open to abuse.
Caveat emptor - customers fixated on low monthly rental costs are the most susceptible to being hoodwinked by unscrupulous lease brokers who are guilty of artificially lowering monthly payments by underestimating the annual vehicle mileage. This can leave customers facing a final balloon payment that is higher than the vehicle's residual value.
To avoid falling foul of this scenario, fleet operators should be sure to ask the right questions, above all else: "has my annual mileage been taken into consideration to ensure my final lump sum payment accurately reflects the vehicle's value?"
In some cases customers may choose a high balloon in return for low monthly costs, but they should be in full possession of all material facts when doing so. So a final word to the wise - tread carefully and don't assume that lease brokers are listening to the angels on their shoulders.
