Hiring versus Leasing - Could hiring a vehicle prove more cost effective than leasing?
In today's modern market place companies of all sizes are looking to out manoeuvre their competitors, whether it’s how they promote their products and services, or cutting costs paid to suppliers. Business travel can play a large part in the success or failure of a small to medium enterprises.
If you or your employees need a vehicle for business use, knowing which option to choose should be a key decision for you.
Traditionally, leasing a car for several years has been seen as the only option. In the last decade, people have realised that leasing a vehicle represents better value for money than owning the same vehicle.
Leasing however does have its limitations.
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For example, being tied into a lengthy period of time (normally a minimum of 2 years), or having an unsatisfactory cap on the number of miles you can cover, before extra charges occur.
Increasingly, car hire can offer a better solution. In particular small and medium businesses can truly benefit if the circumstances are right for them. Flexibility can be a huge advantage to these organisations, key questions to understand your business need;
- Do you have a new starter who is on probation for
3-6 months
- Have you a relatively high turnover of staff?
- Do they need transport to effectively do their job?
The dilemma you face is committing to a long-term lease deal, and potentially being stuck with idle vehicles that you’re still paying for.
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Car Rental companies are selling more long-term car hire to SME customers because they can enjoy the flexibility it provides. If, for whatever reason, after 3-6 months they no longer need that vehicle, they can return it with no penalty. Alternatively, there’s no problem in keeping the rental going on a month by month rolling basis.
Another benefit of hiring a car over leasing is the mileage restrictions. Typically, leasing a vehicle will mean an annual mileage cap. Go over this, and heavy penalties can apply. Car Rental companies can offer a range of monthly mileage limits, which in some cases is over double the mileage available on lease deals. This can be ideal for any company with a sales team.
Is leasing a false economy? A common mistake is companies think they are saving money by having a “low” monthly rate. But make sure you’re aware of extra costs such as tax, insurance, and servicing. Management of cash flow for small to medium size businesses can be make or break.
Therefore knowing exactly what your costs are, and when they are due, is crucial.
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Car rental customers on short and long-term deals are sent a monthly invoice with a line-by-line breakdown of charges, and a final total at the bottom. Also many Car Rental companies will give you a dedicated account manager, should you have any questions.
Using car hire could mean your employees will be driving a new car (they are replaced every 8-12 months), there’s no deposit to pay (also helping cash flows), and they can help supply all the information needed to complete a P11D form.
Of course hiring a car isn’t always suitable. If you’re confident you and your employees need a vehicle(s) for more than 2 years, leasing, or purchasing probably is a good option to consider.
The typical debate on this topic is usually around the merits of leasing over purchasing. But car hire can have some very attractive propositions for your business, and help companies have better control over their costs.
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