Is personal or business car leasing better for company car fleets?
We explain the differences between personal car leasing and business leasing contracts to help you decide whether PCH or BCH is the best way to finance the company cars in your fleet...
As every fleet manager knows, controlling the cost of a firm's company cars while making sure every vehicle is safe and reliable is a huge undertaking, so leasing rather than owning a fleet is an attractive option.
Leasing – aka rental – is a good way for company (and private) car users to run a new vehicle without facing the hassle of actually owning it.
That’s because you simply make the agreed monthly payments then hand back the car when you reach the end of the contract.
There are two main options for fleet vehicles – business leasing (aka BCH) and personal leasing (aka PCH). Both work in generally the same way, but each has its advantages and disadvantages.
In this advice feature, we'll tell you more about BCH and PCH, and suggest some other options to help you decide which is best for your fleet cars.
What is business contract hire (BCH)?
BCH is one of the most popular methods of financing company cars.
A typical BCH contract starts with a down payment, followed by a specified number of monthly payments for a defined period. Down payments are typically equivalent to three monthly payments, but we’ve seen deals with down payments as low as £99 or as high as nine monthly instalments.
BCH agreements are usually over a two, three, or four-year period, and the mileage allowance is agreed in advance. The minimum is usually 10,000 miles per year, up to a maximum of 40,000 miles per year.
It's very important for fleet managers to be aware of the mileage limit and keep track of how many miles their company car users are driving. Why? Well, the financial penalties for breaching the agreed mileage limit can be significant.
Similarly, while a degree of wear and tear is built into every BCH contract, significant damage must be fixed before the car goes back. Your company is likely to face hefty extra charges if you hand back a bashed-up vehicle at the end of the agreement.
For an increased monthly fee, maintenance can be included in the contract, so your company will face no unexpected costs.
One of the main benefits of using a BCH is financial stability – you'll have a good idea of how much you'll be spending over the next few years. You'll also have a "young" car fleet of low-mileage vehicles (to start with, anyway).
Another benefit is that up to 50% of VAT on the BCH contract can be reclaimed, subject to conditions.
What is personal contract hire (PCH)?
PCH is very similar to BCH, but with a PCH deal you can’t reclaim any VAT. To that end, personal contract hire prices are displayed including VAT.
PCH deals proceed along the same lines as business contract hire agreements, in that there’s a down payment followed by an agreed number of monthly instalments over two, three or four years, and a maximum mileage limit that's costly to breach.
The most common down payment is three monthly payments in advance, but as with BCH deals, there are much lower payments out there – as well as higher ones.
Damage must be repaired before the car goes back to the finance company, or you’ll face further charges. It pays to read the fair wear-and-tear guide at the start of your lease, so you know exactly where you stand.
Something else to bear in mind is that when you sign up to a contract, you are tied in until it ends. If your circumstances change and you need to get out of the deal before it has run its full term, extra costs could be levied.
Is PCH or BCH the best way to get a company car?
From a fleet manager's point of view, a BCH deal is usually the better option, because it offers both flexibility and stability.
The flexibility is ideal for a company that wants to run a fleet of cars without the capital outlay typically involved in buying company vehicles.
The stability comes from the fact that once a deal is agreed, the company will know exactly how much will be going out in car payments every month, with no hidden costs – as long as the car remains within the stipulated mileage limit. And there’s the fact that the company can reclaim up to 50% of the VAT on the car.
Meanwhile, PCH is generally better for the employee because it allows them to have a new car every two or three years.
A PCH deal will also suit an employee who tends to cover a lower annual mileage, which helps to keep down the monthly cost of the deal. And again, servicing and maintenance can be included in the cost, for an extra fee.
Of course, if the company you work for doesn’t offer business leasing, PCH or taking the car allowance and getting your own vehicle are your main options.
Are there any alternatives to PCH and BCH?
Yes – you could also consider a business contract purchase, a sale and leaseback, or an employee car ownership scheme (ECOS). You can read more about those on our fleet car finance options page.
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