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Commercial Vehicle (LCV) leasing explained

LCV leasing

Your fleet is a major asset for your business, but it’s also a significant investment. With rising demand for LCVs driving up new and used purchase prices, could leasing be a better option for you, and what do you need to take into account? In this article, we’ll cover the pros and cons of leasing, key considerations for leasing LCVs, and the most popular leasing products available.

What is LCV leasing and how does it work?

Leasing an LCV essentially means renting the vehicle for a specified period of time. Rather than paying cash up-front to purchase the vehicle outright, you simply choose a contract length (referred to as the “term”) which is usually between 24-60 months, the mileage limit the vehicle will be driven during that period, and then pay a fixed monthly amount over the contract term.

 

Because of the lower up-front and fixed monthly costs, leasing offers a flexible and economical way to grow your LCV fleet to meet demand without committing to the full costs (and variable cashflow implications) of purchasing them outright.

 

The vehicle is owned by the leasing provider, so at the end of the contract you simply return it (although there are options to extend the contract or own the vehicle with some finance products).

What are the pros and cons?

Business Contract Hire is the most common form of business lease. As with any funding option, there are pros and cons to be aware of:

Pros

Fixed Monthly Payments

Because your monthly rental cost is determined at the start of the contract, it makes financial planning and cashflow easier to manage. This can also include your LCV conversion costs, allowing you to spread these out across the contract lifecycle.

No Residual Value risk

With Contract Hire, the leasing company retains ownership of the vehicle, which means you don’t have the worry about having to sell it at the end of its life cycle or account for its loss in value over time.

Maintenance and repairs included

With the option to include a maintenance package in your contract within your monthly cost, you can minimise unexpected costs and leave it to the leasing company to manage routine maintenance and repairs.

Access to premium vehicles

Since leasing companies have big buying power, you’ll often be able to access higher-quality or in-demand vehicles that you might struggle to source when purchasing outright.

Flexibility to tailor to your needs

Because you choose the contract length and mileage of your lease, you can set the contract on a per-vehicle basis to suit your specific (and evolving) business needs and priorities.

Tax and off-balance sheet benefits

If your business is eligible, you can reclaim VAT on the monthly rentals, and/or take your fleet off your company balance sheet.

Cons

Early termination fees

Since the contract length and mileage is agreed up-front, if your needs change mid-way through you will either have to negotiate with your leasing provider to make a change to your contract or pay an early termination fee to end the agreement early. In contrast, if you purchase a vehicle outright you have the option to sell it and recoup some of the costs if it’s no longer required.

Potential end-of-contract charges

If you exceed the contract mileage allowance, or return the vehicle with missing items or damage beyond the BVRLA Fair Wear and Tear standards, you will be subject to additional charges.

No option to keep or sell

Since the vehicle remains owned by the leasing provider, you won’t have the option to keep the vehicle or the opportunity to benefit from any potential profits from resale.

Capital allowance and balance sheet drawbacks

Since the vehicle will not usually sit on your business’ balance sheet, you won’t be able to benefit from capital allowances on the vehicle.

What do you need to remember when it comes to conversions?

Assess how conversions might affect your total rental costs

 

Leasing companies should be able to offer funding for a range of conversions which can be combined with your vehicle’s finance.

 

This can help spread out a significant cost across the contract life, however, the conversion might affect the resale value which may also mean higher total rental costs than for a vehicle without any adaptations.

 

You need to understand what (if any) conversions you need at the outset, which your leasing provider should be able to assist you with, to ensure you are making informed decisions.

Plan for the return (or not) of equipment

 

If you lease equipment (e.g. modular racking) along with your vehicle, at the end of your contract term (depending on the type of funding) the equipment may need to be returned or bought with a final instalment, often called a ‘balloon’ payment.

 

If you’re planning to move equipment like modular racking to a new vehicle at the end of contract, make sure the cost of transfers, repairs and refurbishment are taken into account as part of your monthly rental cost to avoid any surprise additional fees at the end.

What if I want to keep the LCV at the end of the contract?

If you want a finance option that gives you some of the budgeting and convenience benefits of Contract Hire but with the option to keep using the vehicle at the end of the contract, it may be worth considering one of the following:

Finance lease

Includes the option to keep using the vehicle under a set agreement for a small nominal fee

Find out more
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Contract Purchase

Includes the option to keep using the vehicle under a set agreement for a small nominal fee

Find out more
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With extensive experience in LCV leasing across the private and public sector and in businesses of all sizes, we can guide you through the complex process of specification, preparation, maintenance and disposal so you can count on receiving the best advice, with outstanding service, every step of the way.

Get in touch with our expert team for advice on how best to approach your LCV fleet priorities.

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