Understanding Contract Hire & Vehicle Leasing - initial rentals, number of payments and processing fees
Are you confused about all the different types of initial rentals, number of payments and admin fees advertised? We can help by shedding some light on what all this means and how to compare the offers properly.
Historical 3 + 33 = 36 months, for example:
Historically, a leasing payment "profile" was made up of an initial rental equal to 3 x rentals in advance, then followed by 33 x regular monthly rentals. This left a "payment holiday" period of two months towards the end of the agreement without a rental to pay, which was designed to let you gather funds ready for your next lease vehicle. This type of payment profile is shown as 3 + 33, or 3 x initial rentals in advance followed by 33 x regular monthly rentals. This format is still available today, utilised by most larger companies with a fleet of vehicles.
Introduction of increased Initial Rental Payments and "Spread" Rentals
In recent years there has been a shift in how leasing offers are structured, in the pursuit of advertising ever cheaper "looking" offers. Initial rental payment offers have increased to 6 x rentals, sometimes 9 x or even 12 x rentals in advance, with the remaining rentals "spread" over the balance of the term, for example 35 x regular monthly rentals for a 36 month agreement. This type of rental payment profile looks like 6 + 35, 9 + 35 or 12 + 35 (all payable within a 36 month term). Sometimes the initial rental payment can be set in the form of a total monetary value, rather than a multiple of the rentals.
Introduction of Administration/Processing Fees
Separate administration/processing fees are now quite common. This could be anything from £200 to £500. Please check all quotation details thoroughly, these admin fees can sometimes be hidden in the "small print".
How to compare them all?
Being able to compare "like for like" is now even harder than ever on the face of it. The safest way is to simply add up the value of all the initial rental payments, the regular monthly rentals and any processing fees payable. This will then provide you with a Total Cost for the term or what is known as the Whole Life Cost. Once you have this figure for each offer you can then safely compare and decide which type of payment profile would best suit your circumstances.
A higher initial rental payment will provide you with lower monthly rental costs, but please remember that if you wish to replace your car with something similar next time around, you will need to provide for a similar initial rental payment, otherwise the monthly rental cost will dramatically increase. The best advice is to settle on a rental payment profile that you are comfortable with and are happy to repeat each time your vehicle is due for change.