Car Leasing at AMT Auto UK

This guide is intended to be used as a helpful reference for those new to the idea of personal leasing. You’ll find an overview of what personal leasing is, how much it can cost, the benefits of a personal lease and how the process works.

What is personal car leasing?

Personal leasing, also known as personal contract hire, is a long-term rental agreement that a private individual takes out with a finance company. You get to lease a brand-new car for a fixed term (normally 2, 3 or 4 years) at an agreed mileage limit for a fixed monthly payment. At the end of the contract, you simply hand the car back to the finance company.

The personal leasing market is growing; attitudes towards car ownership are changing and more and more people are becoming comfortable with the concept of leasing their next vehicle, rather than buying. We’re seeing a growth in the number of businesses that offer their employees a car allowance rather than a company car, which in turn is encouraging private individuals to enter into personal leasing agreements.

What are the benefits of personal leasing?

• Predictable motoring costs. As your monthly payments are fixed, you know how much it will cost to run your car. Road tax is also normally included in the lease contract, and if you take out a maintenance agreement which covers you for servicing and repairs, you won’t run into any unexpected repair bills either.
• No risk of depreciation. When you lease a car or van, you effectively pay for the depreciation of the vehicle over your contract term. This means that it’s the finance company that takes on the depreciation risk, not you. You don’t need to worry about what the vehicle is worth at the end of the contract as you simply hand the car back.
• Drive a better car. Because leasing means you don’t own the vehicle, you only pay for the depreciation over the contract duration – not the value of the car. This means your monthly payments are typically lower compared to other forms of finance. As a result, you can lease a better model, trim or options pack.
• Reliability of the vehicle. Many of us have driven an ageing car and experienced regular mechanical faults, as well as enduring the dreaded MOT where you know the bill is going to be high. Leasing a brand-new car means this won’t be an issue. If something does go wrong with the vehicle, you’ll be covered by the manufacturer’s warranty.
• Get yourself a great deal. There are plenty of leasing brokers in the market who offer some great deals. They’ll work with the finance companies, dealerships and in some instances even provide their own vehicle stock to customers. It pays to shop around and see what deal you can get on your next lease car.
• Avoid MOT costs. Cars and vans don’t need a MOT until they are three years old. If you take out a two or three-year leasing contract, you’ll avoid the hassle and the cost of a MOT.
• A low initial payment. For most leasing contracts you can pay as little as 3 months’ worth of rentals upfront and then drive away your new car. So, on a personal lease of £200 per month, you’d only need to pay £600 (3 x £200) to drive away with a brand-new car.

What are the restrictions I need to be aware of when leasing a car?

• If you exceed the agreed mileage allowance, you’ll pay a penalty for the extra miles you’ve incurred once the contract comes to an end. The amount you pay is based on a pence-per-mile cost and can vary depending on the vehicle. It’s important that you set a realistic mileage limit when you take out your contract and work out if it’s worth paying a bit more to increase your mileage allowance – from 8,000 to 12,000 miles per year for example – rather than paying the penalty.
• You must return the car in a good condition that falls within the BVRLA’s “fair wear and tear” guidelines. The BRVLA (British Vehicle Rental and Leasing Association) is the rental and leasing industry’s governing body. Detailed information as to what constitutes fair wear and tear is covered in our wear and tear guide. As a rule, interior upholstery should be clean and tidy with only slight wear, while burns, tears or stains are not acceptable. If the vehicle doesn’t meet the fair wear and tear guidelines when returned to the leasing company, you’ll incur a charge.
• You can’t modify the vehicle in any way without permission from the leasing or finance company if the contract is directly with them.
• You may not be able to take the car abroad without permission from the finance company.

What's the jargon?

Personal leasing deals are normally available on a 2, 3- or 4-year contract. A 3-year deal that’s advertised as “9+35” means that the initial payment required is 9 month’s lease costs upfront (9 payments in advance), then a monthly payment for the remaining 35 months. Here’s a worked example:

Which cars are best for personal leasing?

There are several factors that determine a good lease car. These include seasonal considerations, supply and demand, residual value (how much the car will be worth at the end of a lease) and the wider economy. When it comes to deciding which makes and models of cars are best to lease, a good rule of thumb is to choose from models which depreciate the slowest – i.e. cars that will lose as little value as possible over the term of a lease agreement.

With a leasing contract you only pay for the depreciation of the vehicle each month, so if a car holds its value well over the contract term, your monthly payment will be lower. Historically, this has meant that German carmakers, such as Volkswagen, Audi, BMW, and Mercedes-Benz have been very popular makes to lease in the UK as they tend to hold their value better than other manufacturers.

Am I eligible for personal contract hire?

There are certain criteria which need to be met to qualify for a personal car lease contract. These include:

• You must be a minimum of 21 years of age
• You must have a full UK driving licence
• You need to provide 3 years of employment history
• You need to be able to provide 3 years of address history
• You need to have a good credit rating. Your credit rating will be checked by the finance company to determine whether you can afford the monthly payments.

Once you’ve chosen your vehicle and agreed your contract terms, you’ll need to complete a finance application form. This will then be sent to the finance company to check your eligibility for finance. Your application will undergo a thorough automated credit check before a decision is made. If you have a good credit score then there shouldn’t be any issue in arranging the leasing finance agreement.

How long does the credit check take?

Most funders respond to a credit application within 2 working days, however, during busy periods (particularly March and September when new vehicles are registered) it can take up to 5 working days to receive a response.

What are the different ways I can finance a personal lease?

There are a number of different ways you can finance a personal lease. Personal leasing (or personal contract hire) is the most common way to lease a vehicle. Alternative financial agreements include personal contract purchase, hire purchase or lease purchase. Each finance option has several benefits and other things you should consider. For more information read our personal finance options guide.

This handy guide provides an overview of what business leasing means, the factors involved in determining how much it costs, what the benefits are and how the application process works.

What is business car leasing?

Business leasing is another name for business contract hire. Essentially, it’s a car lease agreement between a finance company and a business that’s ideal for those who use their car for work as well as for personal use. The process is similar to personal leasing in that you choose a car (or more than one car if leasing for a business fleet), agree on a monthly payment to be paid over a set period (normally between 2 and 4 years) and then the finance company secures the car. Your car will be delivered to you on an agreed date. When you come to the end of the leasing contract, you hand the car back to the leasing company.

How much does business leasing cost?

The monthly cost of a business lease varies depending on a range of factors, including:

• The type of car or van you want. It’s important to note that premium vehicles can come at a higher cost.
• The amount of annual mileage you’re going to do. As part of your business lease, you’ll agree an annual mileage amount. The higher your annual mileage then the higher the monthly leasing payments, as higher mileage means the car depreciates more quickly.
• The company you use for the lease. There’s a range of finance companies, car dealerships and leasing brokers who can offer competing rates, so it pays to shop around to see where you can get the best deal.
• The size of your initial payment. The initial payment, also known as initial rental, is an upfront payment you must make at the start of the leasing contract. This can either be the cost of 1, 3, 6, 9 or 12-months’ worth of your monthly business leasing fee depending on the deal you choose. If you choose a low initial rental (say month’s initial payment) your monthly payments will be higher than if you choose to pay 6, 9 or even 12 months initial rental.
• The contract length. Typically, if you take out a longer contract, such as four years instead of two, then your monthly payments will be lower. Here at AMT, we can offer some 12-month as well as 18-month contracts in addition to the usual 2, 3- and 4-year contracts you see across the market. If a shorter contract is of interest to you then just let us know.
• Whether you include a maintenance package. A maintenance package is an optional extra cost that covers your vehicle for servicing, repairs, replacement tyres and so on. Read more about what’s included in a maintenance agreement in our handy maintenance guide.

Once you’ve chosen your vehicle you’ll be able to amend the contract type, contract length, annual mileage and the initial rental to select the contract terms that work best for you.

What's the jargon mean?

Business lease deals are normally calculated over a 2, 3 or 4-year period. A 2-year deal that’s advertised as “3+23” means that the initial payment required is 3 month’s lease costs upfront (3 payments in advance), then a monthly payment for the remaining 23 months.

What are the benefits of business leasing?

• Tax benefits: If your lease car emits equal to or less than 110g/km of C02, you can claim back 100% of the monthly rentals against tax. Even if your emissions exceed this amount, you can claim back 85% of your monthly rentals.
• VAT recovery: You can claim back 50% of your VAT on your monthly leasing payments for cars, 100% for vans and 100% of VAT for any maintenance fees.
• It frees up cash: If you lease a car instead of buying, you won’t have your cash tied up in a depreciating asset.
• Minimise any depreciation risk: When you lease a car, the monthly payment is essentially to cover the depreciation cost of the vehicle. When you buy a car, you take the risk of depreciation on yourself, so you will likely find that when you come to sell the car after a period of time, the value of the car is much less than what you paid for it.
• No large capital outlay is required upfront: The cost of purchasing vehicles outright can be very expensive in comparison to leasing.
• Business certainty: Your motoring costs are fixed, which makes your business more financially stable. This makes financial planning and budgeting easier.

What are the potential drawbacks to business leasing that you need to be aware of?

• You’re tied into a contract for an agreed period of time. If you wanted to end the contract early, depending on the amount of time left on it and the mileage you’ve done, this could be expensive as you will incur fees.
• You won’t ever own the vehicle and there’s no option to buy it at the end of the contract.
• As part of any leasing agreement, whether business or personal, the vehicle needs to be well looked after and returned to the leasing company in a good condition for the vehicle’s age. If there’s any damage to the vehicle which is above the BVRLA’s “Fair wear and tear” policy, you will be charged for repairs. We’ve produced a handy guide on “Fair wear and tear”, detailing what is and what isn’t acceptable damage.
• Your business leasing agreement includes an annual mileage allowance. This is so the leasing company can work out the correct monthly payments. The higher the annual mileage the higher the charge, as the more your car depreciates in value. If you exceed the annual allowance you will be charged a fixed pence-per-mile penalty for the amount you’re over.
• All leases have to be recorded on the balance sheet as liabilities at the present value of the future lease payments . This does not apply to leases with a maximum of 12 months or less and leases of low value asset (within the region of £3000 or less). This means that you will have to recognise on the balance sheet, the depreciation of the leased asset as well as interest on the lease liabilities.

Why is business leasing cheaper than personal leasing?

• Repayments can be claimed as a company expense. If the cars you lease emit equal to or less than 110g/km of CO2, you can claim back 100% of the rental payments against tax. However, even if the CO2 emissions exceed this, you can also claim back rentals against tax, but only at 85%. The government is encouraging the use of vehicles that create less pollution and this incentive is one way to achieve that goal.
• You don’t pay VAT. You’ll notice that the monthly payment for business leasing is cheaper than the personal leasing price. This is because business leasing prices exclude VAT. All commercial vehicles that are exclusively used for business operations can have 100% of their VAT on the finance and servicing reclaimed.

It’s worth noting, however, that if your vehicle will be used for personal as well as business use, you can’t have the VAT tax benefit on any mileage done for personal use. The private portion of the total usage must be calculated and subtracted from the total. You’ll need to keep a record to show the proportion of the annual mileage which was for business use and what was for personal use. You’ll then be taxed for your personal usage. This tax is known as benefit in kind tax or company car tax.

Am I eligible for business contract hire?

There are certain criteria which need to be met in order to qualify for a business car lease contract. These are:

• You must be a sole trader, partnership, Ltd or PLC
• You must be able to provide company bank statements and/or audited accounts
• You need to produce proof of address and proof of ID for the main company director
• Your business should have a good credit rating.

Your business will undergo a thorough automated credit check before a decision is made as to whether you qualify for business leasing. The purpose of the credit check is for the finance company to determine whether your business can afford the monthly repayments.

If you have a good business credit score, then there shouldn’t be any issue in arranging the leasing finance agreement. If you’re credit score isn’t as good, then you may be asked to provide additional evidence to prove that you can and will make the monthly payments. This could include taking out a director guarantee where you will make the monthly payments should the company fail to do so.

Business leasing for newly established companies

If you’re a business that’s less than 2 years old, you won’t have much in the way of a credit rating, either good or bad. This will make it very difficult to get finance from a finance company as they won’t have any history to go on. And this is where AMT can help. Businesses that can prove that although they’re young they’re in a good place financially could be offered a finance agreement directly with AMT. In this instance, you won’t need to use a finance company for your lease, as instead your finance agreement is with AMT.

How long does the credit check take?

Once you have completed the business finance application form, an account manager will be in touch by phone to confirm your order and run through the necessary pre-credit checks before submitting your application to a chosen funder.

Most funders respond to a credit application within 2 working days, however during busy periods (particularly March and September when new vehicles are registered), it can take up to 5 working days to receive a response from the funder.

In this guide we discuss the different ways to finance your car. Personal contract hire, personal contract purchase, hire purchase and lease purchase are discussed in detail.

Personal contract hire (PCH)

Personal contract hire (PCH), also known as personal leasing, is an effective way to get instant access to a new car without having to worry about a large cash outlay. This simple arrangement allows your car of choice to be leased at an affordable monthly cost, without you having to worry about the effect that depreciation has on your vehicle.

How personal contract hire works

You pay a monthly rental to lease a car over a set period, typically between 12 and 60 months, with a flexible initial payment structure of either one, three, six, nine or 12 months paid after delivery. The vehicle is then returned at the end of the term. This arrangement offers all the benefits of owning a new vehicle but at a much lower monthly cost. Annual mileage requirements, servicing and maintenance options can be customised and included within your monthly payment. At the end of the term the car will be picked up so there’s no hassle with selling it privately or to a garage.

Why choose personal contract hire (personal leasing)?

• You can have a newer, higher specification car than you may have been able to afford outright otherwise
• VAT isn’t paid on the car’s initial purchase price and these savings can be passed on through lower monthly rates
• No ownership or depreciation risks
• You don’t need to resell your vehicle when you’re ready for a new one
• A fixed cost of motoring
• Road tax is normally included in the initial contract
• A shorter leasing period allows for the manufacturer’s warranty to cover the vehicle
• You can opt for maintenance to be included within the lease

Further considerations

• The vehicle must be returned in a well-maintained condition in line with ‘fair wear and tear’
• Early termination can be expensive
• You must have fully comprehensive vehicle insurance
• You will never own the vehicle
• VAT is non-reclaimable
• Recharges can be made for any damages that are not covered by BVRLA ‘fair wear and tear’
• A charge would be made for excess mileage if the contract mileage is exceeded

Hire purchase (HP)

A hire purchase (HP) plan is a very popular and flexible way for people to acquire the vehicle they want immediately and to take ownership once the value has been fully repaid. Hire purchase is similar to a bank loan that is secured against the value of the car, as ownership of the vehicle is assumed once the repayments have been completed.

How hire purchase works

A deposit payment is agreed – typically 10% of the monthly payment – and repayments will be calculated based on this figure, the value of the vehicle, and the length of the repayment term. Once all the repayments have been completed, you will become the legal owner of the vehicle.

Why choose hire purchase?

• There’s no contractual mileage restrictions or charges for damage
• There’s no large upfront investment. The deposit is usually around 10% of the purchase price and the remaining cost is spread over fixed monthly instalments that will not increase – even if bank interest rates rise
• The credit rating of the hirer is not necessarily an issue
• You can save money by paying off your unpaid instalments early
• You own the vehicle once your final instalment has been paid, compared to leasing (renting) the vehicle

Further considerations

• The loan is secured against the vehicle. The vehicle can be repossessed if payments are not met
• If you miss payments, this can negatively affect your credit rating
• The finance company are the legal owners of the vehicle until the agreement is paid in full.
  Repayments will include interest charges, and the car will overall cost more than a cash purchase
• The rate of interest will reflect the level of risk to the lender. Previous poor credit will represent higher risk and a higher rate will be charged

Personal contract purchase (PCP)

A personal contract purchase provides all the benefits associated with personal contract hire but gives you various options to choose from at the end of the contract. You can choose to pay a sum to purchase the vehicle known as a “balloon payment”, return the vehicle as you do with a contract hire agreement or terminate the agreement and take out a new PCP contract for a new vehicle.

How personal contract purchase works

A fixed monthly fee to lease the selected vehicle is paid over a set period of time, and you get a choice at the end of the agreement whether or not to meet a final payment to cover the car’s outstanding value. If this option is taken, the ownership of the vehicle will be transferred to the individual. However, the vehicle can also be returned at the end of the term.

Why choose personal contract purchase?

• You have the option to take ownership of the vehicle at the end of the contract
• The final purchase price will be agreed at the start of the arrangement so there are no nasty surprises
• A low initial payment, normally 10% of the vehicle’s value
• First year’s road tax is included
• Lower monthly payments than you would have to meet with hire purchase, as you will only be covering the costs of the vehicle’s estimated depreciation – not it’s full value

Further considerations

• You will have to decide at the end of the contract as to whether you wish to sell the vehicle, keep it or return it
• If you damage the vehicle, you may incur a charge for any damage not covered in the fair wear and tear guide
• Full comprehensive vehicle insurance is required
• If you exceed the agreed mileage you will incur an extra charge

Lease purchase (LP)

Lease purchase can be a good option for people who would like to own a vehicle but do not necessarily have the money to buy one immediately. Once you’ve made a “balloon payment” (a large final payment) at the end of the contract, you take ownership of the vehicle. The monthly payments cover the difference between the value of the car at the start and end of the agreement.

How lease purchase works

When the lease purchase ends you have two options: either you can make the balloon payment and then take ownership of the vehicle, or you can choose to part exchange your vehicle – you make the balloon payment then lease a newer car.

Why choose lease purchase?

• You’ll have lower monthly payments than if you opted to pay via a hire purchase agreement
• You can choose to settle your agreement early by paying off any outstanding payments
• You will own the vehicle at the end of the contract

There are a number of different ways to finance your business lease. Here at AMT, we specialise in business contract hire but it's worth reading through the other options so you can make an informed choice that meets your business needs.

Business contract hire

Business contract hire, also known as business leasing, arrangements are not only tax efficient, they are also one of the most cost-effective and simplest ways to add vehicles to a fleet without having a significant impact on finances.

How business contract hire works

A monthly rental to lease the selected vehicle is paid over a set period, typically between twelve and sixty months, with a flexible initial payment of either one, three, six, nine or twelve months to be paid after delivery. The vehicle is then returned at the end of the term. Annual mileage requirements, servicing and maintenance options can all be customised and included within the fixed monthly payment if required.

Why choose business contract hire?

• Limited capital investment required
• Business contract hire is usually a cheaper option than actually purchasing a brand-new vehicle
• Rental costs will be off-balance sheet, which has the added benefit of freeing up your credit lines
• Avoid the risk of losing money through depreciation of the vehicle
• No need to sell the vehicle at the end of the agreement, as it will be collected and returned
• This type of arrangement is a good option for businesses that have commercial vehicles as 100% of the VAT on the finance and servicing costs can be reclaimed
• If the vehicle has some degree of personal use, it will still be possible to reclaim 50% of the VAT
• Maintenance, servicing and MOT costs being included as part of the agreement

Further considerations

• Depending on the remaining contract term and mileage used, ending the contract early can be expensive
• You must look after the vehicle and return it in a well-maintained condition. You will be charged for any damage over and above that stated in the BVRLA ‘Fair Wear and Tear’ guide.
• If you exceed the agreed mileage, you will be charged an excess mileage penalty for each mile over your agreed mileage allowance
• You will never own the vehicle as there is no option to buy it at the end of the contract

Business contract purchase (BCP)

Business contract purchase allows you to enjoy the risk-free element of contract hire, while still having the option to purchase the vehicle at the end of the contract term. That allows you to enjoy low monthly payments, coupled with the freedom to wait until the very end of the contract to decide whether you want to purchase the vehicle. This is especially useful for luxury vehicles that are likely to retain their value.

How business contract purchase works

We will work out a fixed monthly payment plan for you and estimate the vehicle’s likely value at the end of the contract. You can start using the vehicle immediately, making the monthly payments and effectively leasing it. As the end of your term nears, you have a choice; you can either choose to hand the vehicle back to us and walk away from the deal completely, or pay the previously agreed figure to assume full ownership. Alternatively, you can refinance the final balloon payment to spread the cost of buying the vehicle.

Why choose business contract purchase?

• You’ve got complete control to choose whether to hand the vehicle back, or purchase it for an agreed amount
• Having a guaranteed purchase price at the end of the contract – and the monthly payments – means budgeting is a simple process
• Your monthly payments are only designed to cover the drop-in value between the initial price and the car’s market value at the end of the term, meaning low monthly payments are possible

Further considerations

• You will have to make a decision at the end of the contract as to whether you wish to sell the vehicle, keep it or return it
• The monthly payments tend to be higher than on a business contract hire
• Sometimes the interest rate is marginally higher than a hire purchase
• The whole cost of the vehicle is shown on your credit file. If you damage the vehicle, you may incur a charge for any damage not covered in the BVRLA ‘Fair Wear and Tear’ guide
• If you exceed the agreed mileage you will incur an extra charge
• The monthly cost doesn’t include vehicle tax

Business hire purchase (BHP)

A hire purchase plan is a very popular and flexible way for businesses to acquire the vehicle they want immediately and to take ownership of it once the value has been fully repaid.

How business hire purchase works

Hire purchase is a very simple finance option. A deposit payment is agreed – typically a multiple of the monthly payment – and repayments will be calculated based on this figure, the value of the vehicle, and the length of the repayment term. Once all the repayments have been completed, the business will become the legal owner of the vehicle. In some cases, the contract allows a proportion of the cost to be deferred to the end of the term before a final balloon payment is made.

Why choose business hire purchase?

• You will own the vehicle once the repayments have been completed
• With this type of agreement, there’s far less risk for the lender so some very attractive interest rates can be offered. And if a larger deposit is put down, then the interest rate can be further lowered
• The credit rating of the hirer is not necessarily an issue
• You get immediate access to your vehicle without having to make a large capital outlay upfront
• There’s no excess mileage charges or damage restrictions
• Hire purchase can be very tax efficient, as vehicles acquired through hire purchase agreements are classified as fixed assets. This allows a percentage of the purchase price (depending on the CO2 emissions) to be written down each year
• VAT paid on vans will usually be required upfront as a deposit, but can be reclaimed in full during the tax return process

Further considerations

• The loan is secured against the vehicle. The vehicle can be repossessed if payments are not kept up
• If you miss payments, this can negatively affect your business
• The finance company are the legal owners of the vehicle until the agreement is paid in full.
  Repayments will include interest charges, and the car will cost more overall than a cash purchase
• The rate of interest you pay will reflect the level of risk to the lender. Previous poor credit will represent higher risk and a higher rate may be charged as a result

Business lease purchase (BLP)

A lease purchase is a popular option for a company that prefers to own its vehicles but likes to spread the payment for them over a fixed length of time. This option is similar to PCP, with the difference being that an agreement to purchase the vehicle at the end of the term is made in advance, with no option for the purchaser to change their mind when the contract ends.

How business lease purchase works

A fixed monthly lease fee and a final balloon payment will be set and agreed at the outset. The balloon payment is based on the vehicle’s estimated future value, or residual value.

When the end of the term arrives, the final balloon payment will be made and ownership of the car will transfer. Or it can be requested that we sell the vehicle on to cover the outstanding value. If the vehicle’s sale exceeds the final balloon payment, 98% of the profits from the sale will be received by the lease holder. Conversely, if the sale value is less than the outstanding amount to pay, you would have to pay the difference.

This option often works out best with luxury cars which tend to retain their residual value extremely well. As the business will be taking on the vehicle as an asset, it will want it to retain as much of its original value as possible in order to benefit.

Why choose a lease purchase?

• Immediate access to the vehicle without having to make a large capital outlay
• The set monthly payment figure will aid budgetary control and financial planning
• The agreement to purchase the vehicle at the end of the term means that lower monthly fees can be offered, as the sale is guaranteed
• No mileage limits
• Monthly payments will not be affected by VAT, so this option can be perfect for non-VAT registered companies who want to own the vehicle at the end of the term
• The vehicles can be listed as company assets on the balance sheets

Further considerations

• The balloon payment must be paid for at the end of the contract
• The risk of the vehicle depreciating is yours
• In some cases, the balloon payment can be higher than the residual value which means you’ll need to pay the difference
• Dedicated funding product, which does not include maintenance or any other value-added services

Business finance lease (BFL)

A business finance lease is a practical and appealing way to gain instant access to a vehicle at an affordable monthly cost. There’s no capital outlay and vehicles purchased in this way will not show up on a balance sheet as assets. At the end of the agreement, any outstanding value can be met by selling the vehicle to a third party.

How a business finance lease works

Essentially, the business rents the vehicle from the finance company for an agreed period. The finance company has ownership of the vehicle but the business (leasse) has exclusive use of the vehicle. The payments made in the contract term are calculated to cover the total cost of the vehicle. Sometimes the lessee pays a balloon payment at the end of the contract, by which point the finance company will have recovered their total investment.

At the end of the lease, there are three options:

1. The leasee can sell the vehicle to a third party. If the sale proceeds exceed the rent the business has paid for the vehicle the leasee could get a rebate.
2. The vehicle can be returned to the finance company to be sold.
3. The customer enters into a secondary lease period. The secondary rental cost may be much lower than the rental cost of the initial lease (this is known as a peppercorn rental) or the lease could continue on a month by month at the same rental cost as the first contract.

Why choose a business finance lease?

• Contract terms of minimum 24 months – maximum 60 months
• Fixed monthly rentals
• VAT reclaim of 100% for business only, or 50% on the VAT paid on the monthly payment if used for personal use as well
• This type of arrangement makes cash flow management simple, as monthly costs are fixed at the beginning of the agreement
• Costs will also be offset against income rather than being a capital expenditure

All good things must come to an end, and at some point, you will need to return your lease car to the provider. If you are nearing the end of your current lease contract, you probably have some questions around the vehicle collection, as well as excess mileage and damage charges. This guide looks at what happens when it is time to give your car back, what to do if you have damaged your vehicle, and whether you can return your leased car early.

What happens at the end of the vehicle agreement?

What happens at the end of a vehicle agreement will vary slightly between different finance companies, but you will usually be contacted by the provider a few months before your lease is due to end. Whether you decide to hand the vehicle back and upgrade to a newer model, extend the lease contract, or purchase the vehicle from the car hire company is your choice, but your options are dependent on the type of contract that you took out at the start of the term.

When it comes to business leasing agreements, there are four possible outcomes: contract hire, contract purchase, finance lease and a lease purchase. At AMT, we specialise in contract hire, where the car is returned to the finance company at the end of the contract, leaving you free to lease a new vehicle. Although we do not offer other finance agreements, it is still important that you understand every contract so that you can choose the agreement that best suits your needs. These are:

• Contract Purchase. The business has the option to purchase the vehicle at an agreed price once the contract ends, or return it to the provider.
• Finance Lease. With a finance lease agreement, the balloon payment must be paid and the vehicle is then sold to a third party.
• Lease Purchase. After a final payment is made, the car stays with you and/or your business.

For personal leasing contracts, there are three options: personal contract hire, personal contract purchase and personal lease purchase.

• Personal Contract Hire. With personal contract hire, the car is returned to the provider, leaving you free to lease a new car.
• Personal Contract Purchase. You have the option to purchase the vehicle for an agreed price at the end of the contract, or return it to the provider.
• Personal Lease Purchase. At the end of the contract, a final payment leaves the car with you.

What happens when a lease vehicle is collected?

If you are reaching the end of your lease contract, it is important that you take the time to properly prepare your car for inspection. The BVRLA advises that you inspect the vehicle for damage at least 10-12 weeks before it is due to be returned to give yourself enough time for any required work to be carried out.

Begin by thoroughly checking the exterior of the vehicle, looking at the roof, bonnet, doors and body for any significant dents or scratches. Examine the mirrors and windows for any chips or cracks, before inspecting the interior for odours or tears in the upholstery. Make sure that the dashboard and all other controls are fully functional, and clear any personal information from the Sat Nav or Bluetooth system before collection.

To have the lease car collected, you will need the registration number, your address and telephone numbers, along with a preferred collection date and any other documentation your leasing company asks for. If you are renewing your lease and have selected a new model, collection and delivery may be able to take place on the same day to ensure a smooth transition between vehicles.

What happens if I have damaged my lease vehicle?

When your vehicle is returned to the finance company, it will be inspected for any damage that failed what is deemed ‘fair wear and tear’ according to BVRLA guidelines. Fair wear and tear refers to the damage that occurs to a vehicle as a result of normal use throughout the lease period, and is not caused by accident, negligent behaviour or poor treatment. For more information, read our guide on wear and tear.

You will be liable to pay for any excess damage that is found outside of fair wear and tear in the form of penalty charges. Excess damage includes everything from accident damage, dents and scratches to missing keys, absent documents or incomplete service history. It is a good idea to take comprehensive photos of the vehicle before collection to ensure you can dispute any possible damage claims with evidence.

Excess mileage charges may occur at the end of a contract if the vehicle has exceeded the mileage allowance agreed at the start of the agreement. These charges vary depending on the manufacturer and model, but generally range from 2p per mile up to 30p.

Can you extend your lease contract?

Depending on the finance company, you may be able to extend your lease contract. However, this is not guaranteed. One of the most common reasons for a driver wanting to extend their contract is because their new car is being delivered a while after their current lease contract ends. They may have ordered a factory car, or taken a while to decide on their next model.

Another reason people ask to extend their lease contracts is because they are not quite ready to part with their vehicle. While this is understandable, extending a three-year contract means you will need to pay for its MOT and may run the risk of your vehicle falling outside of warranty.

Generally, you can extend your lease contract for anything up to 12 months. Some finance companies will have a maximum term that you can extend your lease for, while others will be willing to negotiate based on your personal situation.

When taking a lease car finance option, you have a responsibility to return the car to the finance company in as good a condition as possible.

If you keep your leased vehicle within the BVRLA’s ‘fair wear and tear’ guidelines you won’t incur any additional charges. However, if your car or van has damage which falls outside of these guidelines, you may be liable for an additional charge. This is to compensate the leasing company who will pay to rectify the damage or replace missing items such as lost keys for example.

But what constitutes ‘fair wear and tear’? To ensure consistency across leasing and rental companies and to avoid misinterpretation, the BVRLA has produced a set of guidelines which acts as an industry-standard accepted level of fair wear and tear which AMT adhere to.

Fair wear and tear is simply defined as any acceptable deterioration that occurs on the vehicle during normal usage over the period of the contract. This will include affects to the tyres, bumpers, windows and any interior issues. You can read the full guide here.