What is the difference between business and personal leasing?
If you’re looking to lease a new vehicle and are unsure whether personal or business leasing is best, it can be a tough decision to make.
Fundamentally, business and personal leasing are very similar. However, there are some differences, which we’re going to explain.
What is personal leasing?
Personal leasing, also known as personal contract hire or PCH, is a low-cost, low-commitment way to drive the car you want.
Like most finance types, you spread the cost of the vehicle you’re driving into manageable monthly payments.
However, with a lease, the car is never yours. That’s because your payments cover the vehicle’s depreciation while you’re the registered keeper.
It’s essentially a long-term rental. Throughout the agreement, the lender remains the legal owner – which is worth remembering for your insurance – and at the end of your term, you hand the car back.
How does personal leasing work?
Personal leasing follows a simple process:
- Find the car you want
- Agree on your monthly payments with your lender
- Take delivery
- Drive the vehicle while making your payments
- Hand the car back and walk away when your contract is up
At this point, you’re free to start a new agreement if you wish, and you no longer have any ties to the vehicle.
Read our complete guide to personal car leasing.
What are the benefits of personal leasing?
When you take out a personal lease, you get the chance to take advantage of several benefits which aren’t available with some other types of finance.
- Low, fixed monthly payments
- No upfront cost – all our lease deals come with £0 deposit
- Road tax included in your monthly payment
- Can add a maintenance package to cover costs of MOT and servicing
- Can add a tyre protection package to cover the cost of repair or replacement
- Don’t have to worry about getting rid of the vehicle at the end
- Don’t have to worry about depreciation
Further reading: Pros and cons of car leasing
What is business leasing?
Business leasing is predominately the same as personal leasing, however, it’s usually only available on company cars.
A limited company, sole trader, partnership or LLP can lease a vehicle with fixed monthly payments for a set period, and its driver can use it for business as well as personal journeys.
Like a personal lease, the registered keeper never owns the vehicle. That remains the lender. And the monthly payments cover the vehicle’s depreciation.
Then, just as is the case with a personal lease, at the end of the business lease term, the car is handed back.
How does business leasing work?
Business leasing works in the same way as personal leasing and follows the same process.
And like personal leasing, there are mileage restrictions which need to be adhered to.
However, a business lease mileage is usually much higher than that of a personal lease. On a business lease, the upper limit is usually between 30,000 and 40,000 miles a year, depending on the lender.
Although, there are unlimited mileage leases available, albeit these are harder to come by.
As well, like a personal lease, when it comes to hand the vehicle back on a business lease, if the vehicle is over its mileage allowance or there’s any damage outside of fair wear and tear guidelines, then there’ll be excess charges to pay.
Further reading: Benefits of leasing a car through a business
Why is a business lease usually cheaper than personal?
A business lease is usually cheaper because a personal lease’s monthly price will usually include VAT.
If you have a business lease, as long as the company is VAT registered, the business can claim 50% of the VAT back. Also, businesses can claim back 50% of the VAT on maintenance packages.
Does a business lease affect my tax?
If you drive a company car, it’ll be considered as a benefit in kind and will impact the amount of personal tax you pay.
If you make personal journeys in a business lease vehicle, you’ll have to pay company car tax.
The amount you pay is dependent on how much CO2 the vehicle produces – which is why an increasing number of company car drivers are turning to electric vehicles, as the tax bill is lower.
How does mileage work?
With a personal contract hire agreement for business and personal leasing, you set an annual mileage allowance to help work out the monthly payments at the start.
This is a prediction of how many miles a year you’re going to do each year. At the end, when you hand your car back, the lender will make sure you haven’t exceeded that mileage.
If you have, you’ll be charged a pence-per-mile penalty, which can be from 5p a mile to 30p a mile, depending on your lender.
The lender will also check there’s no damage to the vehicle outside of the fair wear and tear guidelines. If there is, again, you’ll be charged.
But if you haven’t exceeded your mileage, and any damage to the vehicle is within the fair wear and tear guidelines – which is the damage you’d expect a car of its age and mileage to have – then you’re free to walk away.
This is in place because your monthly payments cover the depreciation of the vehicle, i.e. the difference between what the car is worth at the start of your agreement and what it’s worth at the end.
By using your mileage and market predictions, before you take the vehicle, the lender estimates your vehicle’s worth at the end of your agreement – which is how they calculate your monthly payments.
And if your car is worth less than predicted at the end because it’s got a higher mileage or damage, then the charges you face help cover that.
Read our lease mileage guide for more information.
Should I get a business lease or personal?
If you’re in the position to get a business lease, i.e. you’re part of a limited company, a sole trader, partnership or LLP, then it can bring with it several benefits.
But those benefits are only realised if your company is VAT registered – whereby you can claim 50% of the VAT back.
If you’re not, or if you do a lot of personal miles, then it may be detrimental, as any savings you could make might be outweighed by company car tax.
Before going ahead, it’s wise to speak to an expert who’ll be able to advise on what’s best for your circumstances.
How do I get a business or personal lease deal?
Here at Zero Deposit Car Leasing, our team are experienced in both personal and business car leasing and can help you make the right choice for you.
If you already know leasing is right for you, you can get approved in minutes without affecting your credit score by clicking checking your eligibility.