Personal vs business car leasing

We explain the differences between personal and business leasing contracts...

Lexus NX at main dealer

New car leasing is, in effect, a long-term rental, and it's ideal if you aren't bothered about keeping the car at the end of the agreement. You simply make fixed monthly payments for the agreed period and when the contract ends you return the vehicle.

If you're considering leasing a new car, though, you need to make sure that you pick the right deal for you. There are two main routes, depending on what's available to you – personal and business leasing. Both work in generally the same way, but each has its advantages, as well as potential drawbacks. So, let's take a closer look.

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Personal Contract Hire (personal leasing, PCH)

Personal contract hire can allow you to get behind the wheel of a new car every few years for a fixed monthly cost calculated for an agreed term and mileage (this does not typically include insurance or maintenance as standard).

Here are some positives for PCH, and some things to remember:

Positives:

There's no need to worry about reselling your car, because you simply hand it back at the end of the agreement.

Your monthly payments will be lower than they would be if you were buying the car over the same period.

Maintenance packages are usually available at extra cost, and cover you for the servicing of your vehicle.

You get the opportunity to drive a new car that you may not have been able to afford otherwise.

Car keys being handed over

Remember:

You cannot buy the car at the end of your agreement. If you want to do this then an alternative finance option, such as Personal Contract Purchase (PCP) or Hire Purchase (HP) may be better for you.

You agree to an annual mileage limit, and you will be charged per mile if you exceed this.

You are tied into the contract for a fixed term. If you cancel the contract early or make changes, charges may apply.

Make sure to keep your vehicle maintained to a good standard. There is a fair wear-and-tear guide available which outlines what damage is expected from normal usage. Any damage beyond this can often result in costly bills if you don't get it fixed. You should familiarise yourself with this at the beginning of your agreed lease to make yourself aware of what is acceptable.

Used BMW 5 series front

Business Contract Hire (business leasing, BCH)

Business contract hire is very popular among companies, and it works the same as personal contract hire, although it is exclusive to businesses. As with PCH, the contract is based on a fixed term and mileage, but the difference is that you can claim back some of the VAT.

Here are some positives for BCH and some things to remember:

Positives:

For an additional monthly fee, you can have a completely hassle-free experience; some lease companies will offer maintenance packages that will cover nearly every expense associated with owning a vehicle.

Some of or all of the VAT on the rental can be reclaimed; the amount depends on whether the vehicle is solely for business use.

The monthly repayments often work out cheaper than buying the car.

Your fleet will always be made up of new cars with the latest technology, so will benefit from cutting-edge fuel-saving developments.

Hive future tech 2

Remember:

You will agree to a maximum annual-mileage figure, beware of excess-mileage charges if this is exceeded.

You will not have the option to purchase the vehicle at the end of the agreement. If you would like to keep the vehicle then perhaps a hire purchase deal might be better.

You must ensure that the car is properly insured and maintained. Standard wear and tear are allowed - you can check the fair wear and tear guide at the beginning of your agreed lease to make yourself aware of what may be deemed as acceptable.

So, which to choose?

Personal contract hire would suit a driver who covers a limited, predictable mileage, and who wants the opportunity to drive a new car every couple of years. If you don't work for a company that offers business leasing, then PCH is the only choice when it comes to leasing a car, unless you want to pay extra for the flexibility of a PCP contract.

Business contract hire is perfect for businesses looking to run a fleet of company cars, with each catered to the professional and personal needs of the employee. Most BCH contracts are between 12 and 48 months in length, allowing a company to respond to changes in its needs as well as its employees', in addition to avoiding the capital outlay of buying and selling company vehicles.

If you are an individual to whom such a scheme is available, compare equivalent PCH and BCH offers to find the best deal.

Important note

In both instances, the vehicle will belong to the finance company. You will be the registered keeper of the vehicle.

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