Introduction to Motor Vehicle Leasing

Leasing is a contractual agreement where a leasing company makes an asset it owns available for use by another party for a certain period of time in exchange for payment. Payments typically ranged and structure as a series of regular instalments over the period of agreed contract for lease. In many businesses, leasing plays an important role particularly for businesses, which are credit-constrained, either because of general credit conditions or because of their characteristics. An example of this is when a young business with only short track record such as SME’s often finds leasing an attractive solution, specifically for the flexibility it offers, competitive costs offers relative to other forms of financing, and because leasing allows financing of 100% of the price of an asset without the need to go post additional collateral.

Motor vehicles are becoming a popular item for businesses to acquire through lease agreements. Leasing companies provide longer term vehicle funding and hire with an agreed mileage limit for a period of 24, 36 or 48 months. A variety of leasing options and the choice depends on a range of customer characteristics whether it is for business or private individuals. The prominent form of lease is contract hire accounting for 50% of the market.

Opportunities for leasing motor vehicles are provided to businesses that may not exist if vehicles are purchased outright. Leasing a fleet of modern vehicles may not only reduce a business motoring cost through potentially better terms than available from lenders and investors. It may also be a solution to lower maintenance, running costs and an improved image to customers leading to increased activity. The benefits from leasing are not limited to commercial operations. Leasing can also provide credit-constrained household access to vehicles when the cost of a vehicle is prohibitive.

One type of vehicle leasing offered is full-service leasing. Under this option, customers are offered vehicle leasing arrangements under which the vehicle funding company provides periodic maintenance and breakdown repair services in inclusion with vehicle insurance and the payment of relevant taxes. In addition to this, entering into full-service leasing agreements provide wider services aimed at reducing the cost of motoring for the customer.

As an alternative to long-term leasing, rental companies provide cars and vans on short term hire for as little as an hour or as much as a month. Offering a flexible, fixed cost and “pay-as-you-go” approach to motoring, renting caters for occasional transport use. Since rental cars are new, clean and efficient compared to the average car on British roads and because trips to the rental branches are likely to be relatively insignificant compared with the rental mileage itself, using a rental vehicle is likely to have been less polluting option in a number of cases since 4% of rentals were linking with train stations. Vehicle occupancies in rental vehicles were potentially high with nearly a quarter involving 3 or more people travelling in the rental car.

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