It has been said that the moment a brand new car is driven out of the car show room, it immediately loses some of its value. For this reason, a business that supplies employees with cars, or frequently uses cars and vans, the effect of depreciation on new vehicles is a major consideration. see here
A car lease contract could be a viable option for businesses looking for economical ways to maintain and finance a fleet of vehicles. Car leasing offers many advantages, not least protecting the person or business leasing the car from the risk of incurring losses due to major depreciation. The first three years of car ownership usually see the biggest fall in the car’s value, with some cars losing above and beyond 50% of their ‘new’ value.
A car lease contract is usually calculated by taking the difference in the car’s ‘new value’ against the value of depreciation over the period of the lease – so the shorter the lease, the less the depreciation value. For companies that need to regularly supply employees with vehicles, a fast turnover of short term leases could well work out more cost-efficient than purchasing a fleet of of vehicles on a long-term basis. Monthly payments through business contract leasing can also buffer any investment losses due to depreciation, as well as providing solid cash flow forecasting and budgeting if required.
Many business car lease contracts also include maintenance or service contract hire as part of the agreement. Where a business has a number of contracts with the same car lease company, there are often significant discounts to be taken advantage of – thus reducing the ongoing costs of maintaining company vehicles.
In addition, the car lease company can recover the VAT once the car is purchased, meaning this saving is passed onto customers in the guise of lower monthly finance payments – often a cheaper option than buying a car on finance. Although car lease contracts will be subject to mileage limits, if the mileage appears to be working out well below the limits, the company may be happy to amend the original contract hire terms to reflect this, thus reducing payments even further.