If you're looking for a new company car, electric van or a fleet of vehicles, leasing can be a straightforward way to get the vehicles your business needs without necessarily purchasing them outright.

But with Contract Hire, Finance Lease, initial rentals, mileage allowances and maintenance packages to consider, understanding where to start isn't always easy.

Here’s our simple guide to business vehicle leasing and finance.

What is business vehicle leasing?

Business leasing allows a company to use a car or van for an agreed period in return for regular payments.

Exactly how the agreement works depends on the finance product you choose. With some agreements, you simply return the vehicle at the end. Others are designed to give your business the opportunity to purchase or ultimately own the vehicle.

Your monthly cost can depend on several factors, including:

• The vehicle you choose

• Contract length

• Annual mileage

• Initial rental or payment

• Finance product

• Maintenance requirements

• Expected value of the vehicle at the end of the agreement

The important thing is choosing an agreement that works for your business rather than simply choosing the lowest advertised monthly rental.

What business vehicle finance options are available?

There isn't one finance option that's right for every business.

At Lease Electric, we can help you understand the different ways of funding your vehicles and find an option suited to your requirements.

Contract Hire

Business Contract Hire (BCH) is one of the most common ways to lease a company car or van.

Contract Hire (CH) is mileage based agreement for the hire of a car or van for a fixed term usually between 2 and 5 years. You won't own the vehicle, and selling it isn't an option. The deal involves an initial rental payment, followed by fixed monthly rentals for the chosen hire period. At the end, you return the vehicle to the leasing company. 

Find out more about Contract Hire →

Contract Purchase

Funding a vehicle through Contract Purchase (CP) means you're spreading the cost of the vehicle with a fixed rate of interest over a fixed term, usually between 2 and 5 years and have an option to own the vehicle when all of the payments are made. It has a larger final optional payment usually referred to a Guaranteed Minimum End Value (GMEV) which is the amount that the funder guarantees that the vehicle will be worth at that point based on the mileage that you determine at the start of the agreement and the age of the vehicle. When you reach this point, you can choose to make the final payment to own the vehicle or hand it back to the finance company. 

Find out more about Contract Purchase →

Finance Lease

Funding a vehicle through Finance Lease (FL) is one of the preferred funding methods for a van. Essentially it’s a rental agreement whereby the van remains the property of the finance company and they rent it to you over a fixed term, usually between 2 and 5 years. You’ll pay rentals which will be subject to vat and you may have the option to reduce the usual monthly rental by adding a larger final rental at the end of the agreement which is based on the anticipated value at the end of the agreement. The van must be sold to a third party at market rate plus vat and you’ll receive usually 95% or more of the net sale proceeds.   

Find out more about Finance Lease →

Hire Purchase

Funding a vehicle through Hire Purchase (HP) means you're spreading the cost of the vehicle with a fixed rate of interest over a fixed term, usually between 2 and 5 years. It’s a traditional method of finance for those for whom ownership is preferred as with this type of agreement you’ve committed to buy the vehicle from the funder by making all of the monthly payments and an option to purchase fee payable with the last instalment. 

Find out more about Hire Purchase →

Lease Purchase

Funding a vehicle through Lease Purchase (LP) is similar to Hire Purchase in that the cost of the vehicle is spread over a term of usually 2-5 years at a fixed rate of interest but with the addition of a larger final payment usually based on the expected value of the vehicle at the end of the agreement. By having a larger final payment the normal monthly payments are less than a traditional Hire Purchase. It’s a traditional method of finance for those for whom ownership is preferred and who usually change their vehicle at the end of the agreement term.  

Find out more about Lease Purchase →

Operating Lease

Operating Lease (OL) is just like a Contract Hire (CH) and is mileage based agreement for the hire of a car or van for a fixed term usually between 2 and 5 years. The difference between these 2 types of finance is that with OL, only the first 12 months Road Fund Licence is included. You won't own the vehicle, and selling it isn't an option. The deal involves an initial rental payment, followed by fixed monthly rentals for the chosen hire period. At the end, you return the vehicle to the leasing company. 

Find out more about Operating Lease →

How long can I lease a business vehicle for?

The available term will depend on the vehicle, finance product and funder.

You'll normally choose your contract length when arranging your vehicle alongside your expected annual mileage and preferred payment profile.

A longer contract can reduce the monthly rental, but it also means committing to the vehicle for longer.

Think about how your business is likely to change during the agreement. If your mileage, workforce or vehicle requirements are likely to change significantly, this should be considered before committing.

What does 3+35 or 9+47 mean?

When comparing business lease offers, you'll often see payment profiles such as: 3+35 or 9 + 47.

These figures explain how the rentals are structured.

For example, with a 3+35 Spread Rental, the initial rental is equivalent to three regular rentals, followed by 35 regular monthly rentals.

With a 9+47, the initial rental is equivalent to nine regular rentals, followed by 47 monthly rentals.

Contract Hire uses an initial or advance rental rather than a traditional deposit. 

Generally, paying a larger initial rental reduces the regular monthly rental. However, it doesn't necessarily mean the overall cost of the lease is lower.

What is Spread Rental?

Spread Rental is a payment profile where payments continue throughout the agreement.

For example, a three-year 3+35 Spread Rental would have an initial rental equivalent to three regular rentals, followed by 35 monthly rentals.

The payments are effectively spread across the full period of the lease. 

Spread Rental can be useful for businesses that prefer to keep their payment structure consistent throughout the contract.

What is a Terminal Pause?

You may also come across a Terminal Pause payment profile.

With Terminal Pause, you finish making the required rental payments before the vehicle reaches the end of its agreed lease period.

For example, you might see a three-year agreement structured as 3+33.

You make your initial rental and subsequent regular rentals, but towards the end of the agreement there is a short period where you still have the vehicle but no further regular rentals are due.

This is known as the Terminal Pause.

Terminal pause is often used for newer businesses because it reduces the finance company’s exposure to risk. A new-start business may be perfectly healthy, but from an underwriter’s point of view it often has limited evidence. A terminal-pause structure means more of the lease obligation is recovered earlier in the agreement, reducing the Funder's risk.

How does mileage work?

When arranging a Contract Hire agreement, you'll agree an annual mileage allowance.

This should be a realistic estimate of how far you expect the vehicle to travel each year.

Mileage matters because it affects the expected value of the vehicle when it is returned and therefore helps determine the rental you pay. 

If you drive further than the contracted mileage, an excess mileage charge may apply. The amount will be set out within your agreement.

It's worth being realistic. Selecting low mileage to achieve a cheaper monthly rental could leave your business with additional costs when the vehicle is returned.

Should I include maintenance?

Many business lease agreements are available with or without maintenance.

A maintained agreement can incorporate eligible servicing and maintenance costs into your regular rental. Depending on the agreement, this may also cover items such as replacement tyres.

For businesses running several vehicles, this can make budgeting simpler because eligible maintenance costs are incorporated into a predictable regular payment.

Exactly what's covered varies between providers and agreements, so always check the maintenance terms of your quote.

Maintenance - What are the benefits? 

What happens at the end of the lease?

This depends on the finance agreement you've chosen.

With Contract Hire, the vehicle is returned to the finance company at the end of the agreement.

With products designed around vehicle ownership, the process will be different and could involve making a final payment.

If your vehicle is being returned, its mileage and condition will normally be assessed.

End of Contract - Lease Electric

What is Fair Wear and Tear?

Nobody expects a business vehicle that's covered thousands of miles to look exactly as it did on delivery day.

Fair Wear and Tear describes the acceptable deterioration that occurs through normal use. It is different from damage caused by a specific incident, neglect or inappropriate treatment. 

Damage outside the applicable return standard may result in additional charges.

It's therefore worth checking your vehicle well before collection and making sure you understand the finance company's return requirements.

BVRLA Fair Wear & Tear Guide

Can I lease electric cars and vans for my business?

Electric cars and vans can be funded through many of the same business finance options as petrol and diesel vehicles.

However, when choosing an EV for your business, we'd recommend looking beyond the monthly rental.

Consider:

• Daily mileage

• Real-world range requirements

• Home, workplace and public charging

• Where vehicles are kept overnight

• Driver requirements

• Payload and towing requirements for vans

• Vehicle downtime

• Whole-life running costs

The right electric vehicle isn't necessarily the one with the biggest battery or longest range. It's the one that fits how your business actually uses its vehicles.