Patrick O'Gorman, Your Finance Friend Limited
Vehicle leasing is a method of using a vehicle you don’t actually own, cheaply for a period of time governed by the contract you have.
It is cheaper for the user than buying the same vehicle outright as the user is not taking the ownership of the vehicle for the full length of its working life, rather leasing it for a period of that life. That means the person / company that actually owns that vehicle could have a future life with it or resell the vehicle afterwards to realise further value from it.
So who owns your lease vehicle?
The funding house owns the vehicle. The funding house is quite often a bank or major investment firm because to run a fleet of vehicles requires a very large outlay of capital.
Why would a funding house want to own the vehicle I use?
Contract hire allows funding houses to own very large numbers of vehicles so long as they has the investment capital. The benefits of volumes of scale allow the funding house to invest on mass in vehicle services, maintenance services, tyres, management systems, resale processes, purchasing power etc. In short if a company becomes professional and expert in buying a vehicle, running it well and cheaply in-life and selling it better at the end than the individual. . . there is money to be made and everyone benefits.
Benefits to you of Leasing over Outright Purchase
You are not taking the risk of vehicle value – the funder is
You often only need to insure and fuel the car (if you include maintenance, servicing, tyres, breakdown etc)
Expert help when you need it and due to buying power a funder usually has influence on the manufacturers
You know every month what you are financing out – regular rentals
You can hand the car back in a set number of years and have a new one
You can afford a better car than outright purchase method
Better cash flow as money out by outright purchase on depreciating asset is not preferential to individuals or businesses – when compared to lower regular payments. . . as money in bank is better for investment in businesses and security.