This article has been submitted by Pronto
If you run your own business, you will be well aware of the many vehicles available to you and your company, with a large number of brokers claiming to offer the best vehicles at the most competitive market rates. While your agreement needs to financially benefit your business and its transport needs, it is important that you read the small print, not being stung by hidden costs at the end of your contract.
Here at Pronto, we have been working with Welsh businesses for many years, offering short, medium and long term flexi rentals from our Caerphilly base. Eager to highlight the costs involved from the offset, here are just a few features of contracts that you may wish to consider prior to signing on the dotted line.
Leasing/Contract Hire/Flexi Hire? What’s right for me?
The term “Leasing” is a fairly catch-all term. This is a purely financial arrangement and has nothing included in terms of servicing, road tax etc. You are paying a fixed amount; usually based on initial cost of the vehicle.
Generally, if you lease a vehicle, it will be sold at the end of the lease to a third party and you, as the lessee, will be credited with a percentage of the sale proceeds. This is usually 95%, issued as a refund of lease rentals paid. The final rental might be quite high and intended to be paid by the sale of the vehicle. If you as the lessee plan to purchase the vehicle it’s known as a balloon payment. You will be responsible for maintenance, tyres and road tax.
Contract Hire is a specific product. Put very simply, you are hiring the vehicle for a contracted period. Many of the advantages and disadvantages of Contract Hire are a matter of perception. What’s right for one driver might be wrong for another, and vice-versa.
For example, by taking out a contract hire agreement you never take ownership of the vehicle. That may be a problem for some, but an advantage for others who like the idea of being able to return the car and walk away without having to make a balloon payment at the end of the contract or trading the car for another one. Some contract hire agreements also include maintenance packages, meaning all you have to worry about is comprehensive car insurance, tyres, and putting fuel in the tank.
Contract Hire offers the advantage of fixing many of your motoring costs. You know exactly what you will have to pay and when you have to pay it, thus helping you to budget. This also makes contract hire popular among VAT-registered companies who can reclaim 50% of the total payments made and 100% of the maintenance package costs. Hire rental tax allowances can also be applied.
On the downside you must return the car at the end of the contract. There is no option to buy as there is with a personal contract purchase (PCP) agreement.
You are also stuck with that specific vehicle for the entire length of the hire period, typically 13-48 months; you cannot just hand it back halfway through because your business changed.
Flexi Hire fills the gap between daily or weekly spot rental and long term lease or contract hire. There is no long term contractual obligation.
This typically starts at 28 days and can run for up to 12 months. With no upfront fees, you are not fixed to a specific time or specific vehicle type. The longer you hire the cheaper it will be.
Another great advantage is that you can reclaim the entire hire cost against profits as an operational expense. The only thing you have to pay for is insurance on the vehicle, but here at Pronto we can cover this for the first 28 days to get you started.
Before signing off on a lease, you should consider how many miles you expect to travel in your company car/van. From the day-to-day duties to the odd trip that takes you further afield, we recommend factoring in everything; with underestimating the miles you will travel having financial implications. Typical annual mileage in a commercial vehicle will be around 25-30,000 miles a year.
If you go over your agreed mileage on your lease car then you will be subject to excess mileage surcharges at the end of the agreement. This charge can vary between models and how many miles you have exceeded your allowance by, so be sure to keep an eye on the odometer.
Whether you are opting for a 30-day hire or a long-term agreement, as the customer it is your responsibly for the vehicle’s upkeep. At the end of your lease contract, your car will undergo an inspection, with your chosen finance house ensuring the vehicle has been returned in the same state as it left.
If you have evidently damaged the vehicle, such as denting the body or smashing a window, you will be invoiced for the damages, with costs all set out within your initial agreement. Most credible companies will also have a fair wear and tear policy, understanding that cars inevitably change as they are used more frequently. Again, be sure to educate yourself on such policies before signing your business up.
When seeing a flashing advertisement for a brand new van or car at a ridiculously low rate, this is often because VAT is not included in the advert. If you are a VAT registered business then there is no need to worry as you can claim all tax paid back. However, if you are a start-up that is yet to meet the threshold, ensure you factor such extra costs in.
Though a slight bugbear, as a business, vehicle insurance is something that can really support you in the event of an accident. However, the premium that you will be quoted will be dependent on many variables including:
- Driving history of those using the lease vehicle
- Value of the vehicle
- Engine size
- Mileage agreement
- Geographical location
- And much more
For this reason, we recommend running a quick insurance quote on the vehicles you are looking at before making any decisions. As many insurers refuse to offer rates on leased for hired vehicles, here at Pronto we use our own specialist providers.
Most business contract leases will require a deposit; usually sitting at around 3-9 times the monthly cost. However, shorter-term lease offers can vary, so make sure you look at the whole financial breakdown.
Don’t be suckered into a low monthly cost – check the overall price including the upfront fee and the cost of servicing, tyres, road tax.
If you are dealing with a trustworthy broker, then they should be transparent on how much leasing a car will cost you. For more details on Pronto’s vehicles, hire services, including our new Flexi Hire product, contact us today on 02920 851177.