What are Short Term Car Leases?

Short Term Car Leases are becoming extremely popular in the UK, especially with Brexit looming and the analysts predicting another credit bubble bursting due to a rise in personal debt, but what are they and is it easy to get one?

Credit: Pixabay.com

Short Term Car Leases have been around for a while, my personal company has been offering these now since 2008 with thanks to Lombard but nowadays more and more companies offer a short term leasing solution.

There are a few different ways these are packaged. The most popular choice is a fixed term short term car lease. These are generally contracts ranging from 5 to 12 months, occasionally 18. They aren’t readily available from dealerships and you need to speak to specialist brokers.

Another option is flexible car leases, this is really a packaged up long term car rental at a much lower rate. You can generally take these vehicles for 28 days or more and depending on the firm, you can keep the car up to 6 or 12 months without swapping. Flexibility is the key here, there is no point in taking a 6 month contract if you need it for 7 months, just because the price is lower.

There is also the option of a car subscription service, there are many services offering this repackaged long term car hire product, but allows you to pause, upgrade or downgrade you car with ease and with very little commitment. Most include rental, maintenance, road fund licence, breakdown assistance and a generous mileage allowance, some even include insurance.

Short Term Car Lease Pro’s

  1. Approx. 70% cheaper than using Daily Rental over the same period.
  2. Change you car more often than you change your smartphone!
  3. Ideal for new start employees, fixed term employees and projects.
  4. Flexible, especially the flexible car lease options.
  5. 3, 6, 7, 9 and 2 month contract on the fixed options
  6. No long term commitments
  7. Can be available for non-status car lease customers
  8. Can be used for Expat Car Leasing
  9. Drive the car you choose, not a group

Short Term Car Lease Con’s

  1. Costs are generally higher than traditional contract hire & leasing
  2. Insurance can be higher if you’re not savvy, take a 12 month policy and cancel early to save money!
  3. Return standards are much higher for a short term car lease, they are not covered by the BVRLA fair wear and tear guide.
  4. Excess mileage costs are higher due to the residual values on a new car financed over a shorter period.
  5. Deposits or initial rentals can be higher for those on non-status terms or customers with adverse credit.
  6. You can’t order a car of your choice, the options tend to be already available and in-stock ready to be delivered.
  7. Damage to the vehicle needs to be repaired under a manufacturer approved bodyshop, don’t take it to a side street otherwise you will get a bill to rectify the work.
  8. Tyres always need to be replaced like for like, so don’t swap them for budgets or you will get a nasty surprise to replace them.
  9. Don’t pay they’ll take it away — As short term car leases don’t all fall under FCA rules, if you don’t pay you could see your car being repossessed within days and the recovery costs passed on.
Credit: Pixabay.com

Is Short Term Car Leasing for me?

Thats for you to answer, but if you are the type of person to want to drive a new car every time a new plate comes out, a short term car lease could be for you. For those who like to drive a convertible in the summer and an SUV/4x4 in the winter months, then its ideal.

Its also a really good service for Non-status customers who want to build up some credit, Expats who struggle to get a car via the traditional methods and overseas workers coming to the UK who need a car to get to work.

Businesses use short term car leases every day, it saves them having in contract leases sat around when employees have left and they can adapt and expand their fleet with just a phone call, removing cars from their fleet using short term car leases is just as easy to remove exposure.

Short term car leases aren’t going to be for everyone and as we have put in the con’s above, pricing is more expensive, or can be.

Comparing Short Term Car Leases vs. Long Term Contract Hire

It can be pretty easy to compare prices when looking at the 2 options, as with all contract you need to look at the bigger picture. Most contract hire & leases require a high initial payment, these can be in multiples of 6 or 9 equivalent monthly payments, which means the initial outlay can be quite high.

When you tie this in with a low annual mileage (usually advertised at 8k per annum or 10k per annum), then sometimes the short term car lease option can look quite reasonable.

Here are a few current examples (Correct as of 8th May 2019)

36 Month Contract Hire
BMW X3 20d M Sport 5dr Auto
Initial Rental: £3641.13 plus VAT
Processing Fee: £180.00 plus VAT
35 Payments of £404.57 plus VAT
15k per annum / Non-maintained
Overall Cost over the 36 months: £17981.08 + VAT

12 Month ‘Flexi’ Contract
BMW X3 20d M Sport 5dr Auto
Initial Rental: £649.00 plus VAT
Documentation Fee: £175.00 + VAT
11 Payments of £649.00 plus VAT
15k per annum / Maintained
Overall cost over a 36 month period, receiving 3 brand new cars in the same period: £23364.00 + VAT

The 12 month ‘Flexi’ option doesn’t take into account any movement in price changes, I understand this and you are paying effectively more for the contract over the term, but you don’t get the flexibility in the fixed contract. You also get maintenance included in the Flexi option saving you potentially another £600 on servicing costs.

Another example…

24 Month Contract Hire
BMW 116d SE Business 5dr Manual
Initial Rental: £3529.44 plus VAT
Processing Fee: £180.00 plus VAT
23 Payments of £392.16 plus VAT
12k per annum / Non-maintained
Overall cost over the 24 months: £12729.12 plus VAT

12 Month ‘Flexi’ Contract
BMW 116d SE Business 5dr Manual
Initial Rental: £399.00 + VAT
Documentation Fee: £175.00 + VAT
11 Monthly Payments of £399.00 + VAT
12k per annum / Maintained
Overall cost assuming 2 vehicles over a 24 month period: £9751.00 plus VAT

In the above example on the BMW 116d, the flexi term actually works out cheaper based on the same mileage. This does not take into account any changes in pricing when taking that second vehicle. It also remains a flexible option, so you could hand the car back.

Short Term Car Leases in a Nutshell

The examples above are taken in a snapshot of time, and these do change every day. We’ve had quite a few examples over the years where the short term product is cheaper than the long term, but it only really works when there is a vehicle or manufacturer with a strong residual value.

This is why you will see so many German brands on short term car leases, they hold their values a lot better than others, and therefore it’s cheaper for the short term providers to finance the cars.

How do suppliers work out the cost of a short term car lease?

This is a pretty easy equation:

Cost of Vehicle vs. Residual Value at resale

The cheaper the initial cost of the car and the better the brand holds its value, the cheaper the monthly rental is. This depreciation rate dictates what the monthly rate is going to be and makes up for the biggest part of the lease’s monthly payment.

The residual value is dictated from historic data, however, the mileage and condition of the vehicle plays a huge part. If you are a high mileage user, then the car will be worth less at the end of the agreement, dictating a larger monthly rental payment.

Any questions on short term car leases?

If you have any questions on short term car leases or have had them before in the past and you believe I’ve missed anything, then drop me a line below and I will come back to you.

About me and my short term car lease business…

I have been running my own short term car lease business since 2007, having come from a dealership background. I like to be upfront about the services we offer and the pro’s and con’s of a contract. Also I’m not a sales person, so I’m determined to recommend products and services based on the customer and not the profit.

Find out more about my business here: Cocoon Group

I live in a beautiful town called Belper on the edge of the Peak District with my wife Rebecca. I enjoy writing, photography and gadgets.