Lease Hire - 5 Step Guide

5-step guide for small to medium-sized businesses

As a small to medium-sized business owner you may be faced with the decision to purchase vehicles for business or private use. Should you buy or lease? The answer is simple but not particularly useful: It depends! Your investment horizon will determine which is cheaper.

• Short term: monthly lease payments are always significantly lower, even when compared to 0% or low interest car loans.

• Medium Term: cost is about the same assuming your intention is to sell the vehicle at loan-end if you buy.

• Long term: buying always works out cheaper if your intention is to drive the car into the ground, maintenance and repair costs notwithstanding.

Is leasing right for you?

Leasing typically helps small to medium-sized business owners that are

• anxious to preserve cash for growth opportunities and other more important obligations

• frustrated by fluctuating vehicle operating costs that make it difficult to budget

• apprehensive about the business disruption that ageing vehicles may cause if they break down

• concerned about the public image they portray with an ageing fleet

•  unsettled about losing critical staff and plan to retain them by offering car benefits

• worried about the amount of valuable time that vehicle issues are taking up in their business

• seeking ways by which they can reduce their tax burden

It’s not for businesses that are

• unstable and may need to exit the lease early

• casual about the upkeep of vehicles with no policy controlling car usage and excess wear and tear

Choose the right Car

Cars that have a high resale value and therefore high lease residuals make the best lease deals (see Parkers 100 Depreciation Guide); these are usually models renowned for their quality and reliability.

As a general rule, avoid cars that drastically change styles every year as they typically don’t hold their value very well and are therefore more expensive to lease.

Know what to Pay

Negotiate up from the manufacturer’s OTR (on-the-road) price for the car you want (see Parkers Price Guide) rather than down from the leasing company’s price.

• Remember that the quoted car price of the lease deal is always negotiable.

• Your bargaining range is the difference between the manufacturer’s OTR price and the leasing company’s quoted price.

Understand the Lease Deal

A good leasing deal is a combination of four elements: [a] Low OTR price [b] Low money factor (interest rate) [c] Low administration fee [d] High residual value.

A lease deal can be complex and an independent broker can give you impartial advice.

Keep your side of the Deal

When the deal is done protect the savings you’ve made. (An excellent lease deal can rapidly become costly if you do not keep to the provisions in your lease Contract).

• Set pro-rata monthly mileage targets based on your annual limit; take action to bring your mileage back in line if these targets are consistently exceeded.

• Ensure that you have a company policy covering car usage and maintenance.

Contact your local Accredited Partner for more details.

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