Whether you require a new vehicle for personal or business use, car leasing could be an affordable and convenient solution.
Rather than using up a huge chunk of their savings to become the proud owner of a new vehicle, many individuals and businesses are now enjoying the benefits of driving a new vehicle, without ever owning it.
If you’re not sure whether personal or business contract hire is the more suitable option for you, then this article can help you to understand the differences between the two leasing options.
Personal Contract Hire (PCH)
Personal contract hire (PCH) is a type of vehicle leasing suitable for individuals who wish to drive, but not own, a new vehicle. Personal contract hire agreements are not usually the most beneficial option for people who will be using the vehicle for business use.
A PCH agreement allows you to effectively ‘borrow’ a new car from a leasing company and pay a reliable, fixed monthly payment for the service.
At the end of the agreement the car is returned to the leasing company and you have the option to take out a new personal contract hire agreement on either the same car or a different car.
You may also be able to take out a servicing and maintenance package, allowing you to pay a little more each month to cover the costs of servicing, repairs and breakdown costs. This will ensure that your monthly vehicle expenses are as consistent as possible, providing you with better financial security.
Benefits of Personal Vehicle Leasing
- Drive a new and modern vehicle – Leasing gives many people who otherwise couldn’t afford a new car, the opportunity to drive a modern vehicle. New and modern cars equipped with all the latest technology and are generally more comfortable to drive, more fuel efficient, and far less likely to break down!
- Fixed, low, monthly payments – When you choose personal contract hire, there’s no need to spend a large chunk of your savings. The monthly payments to lease a car are generally also far more affordable than the monthly payments required when you buy a new car.
- No hassle selling the vehicle – At the end of your lease, you can simply hand the car back, avoiding the stress of selling the vehicle and the expense of depreciation.
- Flexible – Most car leasing companies provide a broad range of flexible terms, allowing individuals to choose an option that best suits their budget and requirements.
Business Contract Hire (BCH)
Business contract hire is a vehicle leasing agreement made between a vehicle leasing company and an established business.
Taking out a business contract hire agreement is likely to be more beneficial if the vehicle is going to be involved in business use.
Business car leasing is used by VAT registered companies, limited companies, partnerships and sole traders. A business contract hire agreement can be used for both vehicles that are to be used solely for business and company cars that will be used by employees out of work hours too.
Business contract hire works in much the same way as personal contract hire. A business chooses a vehicle or fleet of vehicles that suits their requirements and then pays fixed monthly payments to lease the vehicles over a set period of time. At the end of the lease, the vehicles are returned to the leasing company.
It may sometimes be possible to receive an exclusive business contract hire deal that varies from the deals available for personal contract hire agreements.
One key difference between personal and business contract hire agreements is the annual mileage rate.Generally, vehicles used for business use will rack up a lot of miles as they may be driven both during work hours and out of hours at the weekends. To account for this, business contract hire agreements tend to be available with higher annual mileage rates.
Benefits of Business Vehicle Leasing
- All the same benefits as personal leasing – Including affordable monthly payments, access to modern new vehicles, and flexible agreements to suit your requirements.
- Claim back VAT expenses – Businesses can claim back VAT on business contract hire agreements. For vehicles used exclusively for business, 100% of the VAT can be reclaimed, whilst 50% can be reclaimed for company cars.
- Pay less tax – With business contract hire agreements, the cost of the monthly payments can be offset against taxable profits to reduce the amount of tax the business pays.
- Off the balance sheet – When you lease a vehicle, there is no need to record any losses caused by the vehicle’s depreciation or disposal. This means no negative effect on your company accounts’ Profit and Losses.
- Retain your working capital – Leasing business vehicles instead of buying them allows your business to retain its working capital. Maintaining a healthy cashflow is key to developing and growing a thriving business.
Why Is Business Car Leasing Cheaper Than Personal Leasing?
Personal car leasing deals always include VAT within the advertised cost. Business lease deals are cheaper than personal vehicle leasing, because 50% of the VAT can be claimed back, providing that the company is VAT registered. Business owners can also claim back VAT on maintenance agreements that are taken out on the lease car.
Choosing between personal or business leasing can be a tough decision to make, whatever you decide, the UK’s leading car leasing experts LetsTalk Leasing will be on hand to answer any questions and find the right leasing deal for you.