Leasing basically means renting the car – you pay an upfront down payment on the car and thereafter you pay a monthly fee to keep the car in your control.

When looking for ways to finance a vehicle for a business fleet, leasing can be particularly cost-effective.

The monthly payments are calculated as the original cost of the car, minus the cost of the car at the end of the agreement, factoring in wear and tear and depreciation.

Because of this, the less a vehicle is likely to depreciate the better a deal it becomes. It is because of this that luxury cars are often a favourite for people looking to take out a lease.

Upfront costs are not usually that high, and monthly repayments tend to be lower than that of a hire purchase.

Amongst the benefits to this approach is the fact that large sums of company capital are not tied up in its fleet vehicles. Alongside that, running costs are spread evenly.

SMEs interested in adopting this approach can generate a bit of dealer competition by issuing a tender document which then generates leasing rates on a select group of preferred vehicles.

However, as part of the agreement, the customer must make a balloon payment at the end of the lease period to make the car officially theirs. This is not optional, and you will need the finance at the end of the agreement to make this payment.

Managing a whole fleet of lease purchase vehicles is tricky, and this requires a great deal of research. This may be a better option for sole-traders and micro businesses.

If you’ve found this article useful then make sure you visit our complete A-Z of business fleet terms, which provides a complete glossary so you can make an informed purchasing decision.

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