Financing your fleet: are you benefiting from the best finance deal?

Finding a fleet of vehicles for your business or SME can be a difficult affair, not least because of the initial outlay of money if you’re buying them outright. Purchasing new vehicles is expensive, but might be preferable in the long-run to buying older cars or vans that are more likely to need maintenance as they age.

Many companies are now choosing to lease instead, as this is a simple but effective way of keeping several good, new vehicles on the road simultaneously without breaking the bank. This effectively sees drivers paying for the depreciation of the vehicle; a calculation is carried out as to what the vehicle will be worth three years after it is first purchased, and the driver pays an amount each month based on this drop in value.

At the end of a given term – often three years – the lease comes to an end and the car is returned to the company. Most lease deals come in two terms: PCH and PCP, standing for Personal Contract Hire and Personal Contract Purchase, with the latter allowing you to buy at the end of the term rather than return it. The two main differences between leasing and financing a car are the monthly cost – paying for a vehicle on finance involves paying an amount based on the entire vehicles value, not its fall – and the fact that the car is returned at the end of the stint. Maintenance on the vehicle will be covered by the lease company during the term.

Paying for a fleet of vehicles in one go could prove crippling, and it might benefit to go for a blend of buying on finance and leasing. If you want to own only a very small fleet, Moneysupermarket notes: “The lowest personal loan rates are often limited to loans of between £7,500 and £15,000. So if you were thinking about borrowing £6,000, it may be worth increasing the amount to £7,500 to take advantage of the cheapest interest rates.” Meanwhile, a business loan might offer far better rates than taking up dealer’s finance option.

The main advice for anyone thinking of taking on a lease for their fleet is to be thoroughly aware of the terms and conditions of the agreement, and be aware of penalties and extra charges that can be levied. A big one is the mileage limit that some firms impose, because breaking that limit could result in a penalty. With a fleet, that could be several penalties, so it may pay to work out how far you think you’ll be driving in any given period – and then add on some more miles. If you feel you’ll be going over the limit discussed in the terms, it could be worth paying for an upgrade. Also, leasing can also be productive for tax purposes.

In conclusion, your best bet is to simply do your research. Write down exactly what you need: vehicle size (engine and capacity), the type of work that will be carried out, the importance of vehicle efficiency, the number of people in your firm who will be using the vehicles, and any mileage expectations.