Car Leasing Explained.

Car Leasing Explained: A Comprehensive Guide by Silverstone Leasing

Car leasing is an increasingly popular way for individuals and businesses to get behind the wheel of a new vehicle. However, it can be confusing with different leasing options, benefits, and drawbacks. In this article, we will explore the concept of car leasing and provide a comprehensive guide to help you understand the ins and outs of car leasing, including personal leasing, business leasing, PCP, and the benefits of electric car leasing.

Introduction to Car Leasing

Car leasing is a form of vehicle financing where you lease a car for a fixed period. Instead of buying a car outright, you pay a monthly fee for using the vehicle. The leasing company owns the car, and you return it at the end of the lease period. See our article what happens at the end of my lease

Car leasing is often seen as a more affordable way to drive a new car, as the monthly payments are usually lower than the cost of purchasing the vehicle outright.

There are three main types of car leasing: Personal Contract Hire (PCH), Personal Contract Purchase (PCP), and Business Contract Hire (BCH). Each option has benefits and drawbacks, which we will explore in more detail below.

Personal Contract Hire (PCH)

Personal Contract Hire (PCH) is a car leasing type primarily designed for private individuals. PCH is sometimes also referred to as personal leasing or car leasing. With PCH, you pay a fixed monthly fee for using the car over a set period, typically 2-4 years. You return the vehicle to the leasing company at the end of the lease period.

Benefits of PCH:

• Affordable monthly payments: PCH is often seen as a more affordable way to drive a new car, as the monthly payments are usually lower than the cost of purchasing the vehicle outright.
• No need to worry about resale value: As the leasing company owns the car, you do not need to worry about the car's resale value when the lease period is up.
• Maintenance and servicing may be included: Many PCH agreements include maintenance and servicing, which can save you money in the long run.
• Ability to upgrade your car regularly: With PCH, you can upgrade your car every few years, which means you can always drive a new car.

Drawbacks of PCH:

• Mileage restrictions: Most PCH agreements have mileage restrictions; if you exceed these, you may be charged additional fees.
• No ownership of the car: As the leasing company owns the car, you do not own the car at the end of the lease period.
• Potential for additional fees: You may be charged additional fees if the car is returned with any damage beyond normal wear and tear.
• Limited customisation options: As you do not own the car, you are limited in customisation options.

Personal Contract Purchase (PCP)

Personal Contract Purchase (PCP) is another car leasing type primarily designed for private individuals. PCP is similar to PCH in that you pay a fixed monthly fee for car use over a set period. However, with PCP, you also have the option to buy the car at the end of the lease period for a pre-agreed price, known as the balloon payment.

Benefits of PCP:

• Affordable monthly payments: PCP is often seen as a more affordable way to drive a new car, as the monthly payments are usually lower than the cost of purchasing the car outright.
• Option to purchase the car at the end of the lease period: With PCP, you can buy the car at the end of the lease period for a pre-agreed price.
• No need to worry about resale value: As with PCH, you do not need to worry about the car's resale value at the end of the lease period.
• Maintenance and servicing may be included: Many PCP agreements include maintenance and servicing, which can save you money in the long run.
• Ability to upgrade your car regularly: With PCP, you can upgrade your car every few years, which means you can always drive a new car.

Drawbacks of PCP:

• Mileage restrictions: Like PCH, most PCP agreements have mileage restrictions, and if you exceed these, you may be charged additional fees.
• Balloon payment: If you decide to purchase the car at the end of the lease period, you must make a balloon payment, which can be a significant amount of money.
• Additional damage fees: You may be charged additional fees if the car is returned with any damage beyond normal wear and tear.

Business Contract Hire (BCH)

Business Contract Hire (BCH) is a type of car leasing that is primarily designed for businesses. With BCH, the leasing company provides a vehicle or a fleet to a business for a fixed monthly fee. The firm does not own the cars and returns them at the end of the lease period.

Benefits of BCH:

• Affordable monthly payments: BCH is often seen as a more affordable way for businesses to provide vehicles to their employees. The monthly payments are usually lower than purchasing the vehicles outright.
• Tax benefits: Businesses can claim back the VAT on the monthly payments, which are tax-deductible as a business expense.
• No need to worry about resale value: As with PCH and PCP, the leasing company owns the vehicles, so the business does not need to worry about the resale value of the cars.
• Maintenance and servicing may be included: Many BCH agreements include maintenance and servicing, which can save the business money in the long run.
• Ability to upgrade the fleet regularly: With BCH, businesses can upgrade their fleet every few years, which means they can always provide their employees with new vehicles.

Drawbacks of BCH:

• Mileage restrictions: Most BCH agreements have mileage restrictions, and if the vehicles exceed these, the business may be charged additional fees.
• No ownership of the vehicles: As with PCH and PCP, the business does not own the vehicles at the end of the lease period.
• Limited customisation options: As with PCH and PCP, the vehicles are not owned by the business, so they are limited in terms of customisation options.

Electric Car Leasing

Leasing an electric car has become an increasingly popular option in recent years, with many leasing companies offering a range of electric vehicles. There are several benefits to leasing an electric car, including tax benefits and lower running costs.

Benefits of Electric Car Leasing:

• Tax benefits: Electric vehicles are exempt from road tax and may also be eligible for other tax incentives, such as the Plug-in Car Grant.
• Lower running costs: Electric vehicles have lower running costs than petrol or diesel vehicles, as they do not require fuel and have fewer moving parts that require maintenance.
• Environmental benefits: Electric vehicles produce fewer emissions than petrol or diesel vehicles, which is better for the environment.
• No need to worry about resale value: As with other types of car leasing, you do not need to worry about the resale value of the electric car at the end of the lease period.

Drawbacks of Electric Car Leasing:

• Limited range: Electric vehicles have a limited range compared to petrol or diesel vehicles, so you may need to plan your journeys more carefully.
• Limited charging infrastructure: Although the charging infrastructure is improving, there are still fewer charging points than petrol stations, which may limit your ability to
• travel long distances.
• Higher upfront costs: Electric vehicles can be more expensive to lease than petrol or diesel vehicles, due to their advanced technology and the cost of batteries.
• Longer charging times: Charging an electric vehicle can take longer than refuelling a petrol or diesel vehicle, which may be inconvenient for some drivers.

Taxation Benefits of Electric Car Leasing

One of the main benefits of leasing an electric car is the tax incentives that are available. In the UK, electric vehicles are currently exempt from road tax, and electric car drivers may also be eligible for other tax incentives, such as the Plug-in Car Grant.

The Plug-in Car Grant is a government incentive that discounts the purchase price of an electric vehicle. The grant amount varies depending on the type of vehicle, but it can be worth up to £2,500. To be eligible for the grant, the electric vehicle must meet specific criteria, such as having a range of at least 70 miles.

In addition to the Plug-in Car Grant, electric car drivers may also be eligible for other tax incentives, such as reduced company car tax and lower benefit-in-kind (BIK) tax rates. Company car tax is based on the CO2 emissions of the vehicle, and electric vehicles are currently taxed at a lower rate than petrol or diesel vehicles.

Conclusion

Car leasing can be a cost-effective and convenient way to drive a new car, whether you are a private individual or a business. Personal Contract Hire (PCH) and Personal Contract Purchase (PCP) are popular options for private individuals. At the same time, Business Contract Hire (BCH) is a good choice for businesses.

Electric car leasing is becoming increasingly popular, thanks to the tax incentives and lower running costs associated with electric vehicles. However, some drawbacks are also to consider, such as limited range and higher upfront costs.

With the right car lease, you can enjoy the benefits of driving a new car without the upfront costs and ongoing maintenance expenses of owning a vehicle outright. When choosing a car lease, it is essential to consider your budget, your driving habits, and your priorities. 

Read the terms and conditions carefully and compare several lease options before deciding.

If you're interested in leasing a car or have any questions, please don't hesitate to contact us at Silverstone Leasing. Our team is always here to help. You can call us on 01604 978480 or email us at sales@silverstoneleasing.com.

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