Is it better to lease or PCP an electric/alternative fuel car? This is a question that Car e Lease is regularly being asked by its customers, as new powertrains are being brought to the automotive market; Rob King from Car e Lease provides the answers below.
If the future is green should I, or my company, be buying an electric car or looking at a PCP (Personal Contract Purchase)? To Lease or Buy, that is the question… the conundrum of a usership vs ownership is not a new one.
For the last 10 years the growth of contract hire as the foremost way to procure a new vehicle has seen a shift in attitudes and behaviours. The issue with ‘the PCP’ is that some customers have, allegedly, been offered a solution which will build equity in a vehicle or allow them to return one at any point. This was a mix of over-salesmanship coupled with a lack of understanding from the customers. And, to be frank, some customers are simply more interested in the cheapest monthly solution rather than the detail.
A PCP contract operates in a similar way to a contract hire agreement in many ways; you choose a vehicle, a term (24-60 months), annual mileage (5,000 – 50,000 miles per annum) and an initial payment (with contract hire we call it an initial rental). When you put together the PCP solution you are provided with a guaranteed future value (GFV)/balloon, which is an amount of money you must pay to purchase the vehicle or, alternatively, decide to hand the vehicle back to the finance company.
Undoubtedly, a PCP can be seen as more flexible than a contract hire solution as there is an ability to purchase or return. Contrary to popular belief, you cannot return the vehicle at any point. You must ask for an early termination, which involves you paying the finance company an amount of money to return the vehicle or, should this arise, an amount of money to purchase the vehicle. When you have paid over 50% of the total amount payable you may voluntary terminate the vehicle, a process which does not need you to pay anything further. When the vehicle is returned, it will be subject to an inspection and the mileage is reviewed. If you damage the vehicle excessively or go beyond the contracted mileage you will be charged for this. There is no such thing as an unlimited mileage PCP with a GFV; the contract is based on your needs and requirements. Customers believing their only obligation is the monthly rental have unfortunately been misinformed or have failed to understand the process.
Where a PCP offers a great solution is for those customers who genuinely do want the opportunity to buy/sell the vehicle. Please do not enter into a contract on the understanding the vehicle will make you money; cars generally depreciate and are not a form of investment! The interesting notion with electric vehicles, and other alternative fuel vehicles, is that their residuals are currently strong. With supply being limited and demand growing, the interest in a 2/3/4 year old vehicle is only increasing. A lot of this is down to company car tax changes from April 2020, when the Benefit in Kind company car tax rate will reduce to zero for pure EVs plus emissions-based charging coming into force via local authorities in cities throughout the UK. The consideration is about moving customers away from traditional combustion engines and into newer forms of technology. We’ve already seen the impact of ‘dieselgate’ reducing interest in diesel vehicles as a whole, so there is a clear ability to change attitudes to fuels.
While the entrepreneurs amongst us want to pursue the purchase-style approach to benefit from potential profits, those risk-averse amongst us may feel a little different. Will electric vehicles work out? What happens if a new form of energy like hydrogen proves to be better? If you do go down the purchase route or PCP, it is likely you are not only going to pay more than a contact hire agreement, you are undertaking more risks.
One of the reasons that contact hire is so popular is that the risk and reward sits with the finance company; so long as the customer operates within the allocated annual mileage and does not return the vehicle in a condition below the standards of the BVRLA’s fair wear and tear standards, there are no additional costs. Should the actual price of a vehicle fall short of that expected, it is down to the finance company to manage this issue and loss. Contract hire, with a funder-maintained option included, can offer fixed cost solutions. With the exception of insurance and fuel/electricity, you can pay an amount of money per month for a vehicle. There are no hidden costs, charges or balloon payments. At the end of the contract, you simply organise the vehicle to be collected from your home or business address. If you enjoy the vehicle/finance product, you can manufacture a situation where your new one arrives on the day your current model is collected – known as ‘key for key’. With battery and technology developments rapidly occurring, are you not more likely to change a car every 2-3 years anyway?
There is no right or wrong answer for everyone. In every situation consider if the fuel choice is right for you/the company based on the driving behaviours and your circumstances. Don’t presume the cheapest monthly solution if the best solution!