National Car Leasing

Car Leasing Options

The one characteristic of all types of National Car Leasing agreements is that title (ownership) is always vested with the Lessor (The Lender) and can never pass to the Lessee (The User).

National Car Leasing agreements are generally categorised in two ways:

Finance Leases
Operating Leases
National Car Leasing

As already stated, title never passes to the user and as such it might be expected that nothing would appear by way of assets on the balance sheet of the user. However in order to stop distortion to the ratio of capital employed with companies leasing most of their assets, the Accounting Standards Board require that under certain circumstances, generally where the residual value risk lies with the fleet operator, the capitalised value of Leased Assets must be disclosed in a company’s annual financial statements.National Car Leasing

Finance Lease

This is purely a financial arrangement whereby the lessor provides finance to the lessee for the purpose of purchasing a car over an agreed period at the end of which the car is sold and the agreement terminates. There are two methods:National Car Leasing

The total amount borrowed from the National Car Leasing company is fully repaid over the agreed period and any Residual Value realised at the end of that period on the sale of the vehicle is rebated to the lessee as a Rebate of Rentals’. If the user wishes to continue using the vehicle at the end of the agreed period, rather than it being sold, it may be agreed to continue on the payment ofa `peppercorn’ rent (normally about 1 % of the original value) until the car ceases to be of use, at which time it is then sold with all or part of the realised value being returned to the lessee as a ‘Rebate of Rentals’.National Car Leasing

The alternative method (and most commonly used) is only the estimated amount of depreciation is repaid in the agreed period with one large terminal rental (balloon) being paid at the end of the agreed period. The lessee will then receive back a ‘Rebate of Rental’ out of the proceeds of the sale of the vehicle, which if all works out as expected would be roughly the same as the terminal rental payment. The same circumstances as above apply here if the user wishes to continue using the vehicle beyond the agreed period.National Car Leasing

It can be seen that with both of these devices it is the Lessee that takes the Residual Risk and it is on this basis that Finance Leases are required to be disclosed on the users Balance Sheet by the fact of who takes this risk.National Car Leasing

Operating Lease

The main difference of an Operating Lease (or Contract Hire) from that of a Finance Lease is that in an Operating Lease most of the “risk and reward” is born by the Lessor contrary to that in a Finance Lease when it is the Lessee Consequently, the Lessee is not required to disclose Operating Leased Assets on their Balance Sheet.

In the case of an Operating Lease the monthly rental costs would be determined by:

The cost of the car to the Lessor
Rates of interest to be applied
The mileage agreed within the contract
The Residual Value estimated by the Lessor
The Lessor’s tax position
The amount of profit expected by the Lessor
Inclusion of a fixed service and repair cost if the agreement is “Full Maintenance”

Depending on the terms and detail of the National Car Leasing agreement the Lessee’s responsibility could be:

Maintenance and Repairs
Fuel Accident management *
Road Fund Licence *
Insurance
M.O.T Testing *
Short Term Car Hire Replacement where required *

* In the case of a Full Maintenance National Car Leasing agreement some or all of these items may be the responsibility of the Lessor.National Car Leasing

At the end of the agreement when the car is handed back to the National Car Leasing company, the Lessee may be required to pay:National Car Leasing

A payment in respect for any excess mileage completed
A payment for any damage to the car over and above “Fair Wear and Tear”

If the contract has not run the contracted period, there may also be charges in respect of early termination.National Car Leasing

Car Hiring (Daily Rental) National Car Leasing

Hiring in these circumstances will generally be for short periods only, for such purposes as:

Principal car “off the road” due to accident or mechanical fault National Car Leasing
Short term use away from the user’s normal operational base, where the destination has been reached initially by public transport
Staff employed on short term assignments, or home from abroad for short periods
Staff engaged on trial for probationary periods. Upon satisfactory completion of a trial or probationary period, a car operated in a more orthodox manner will normally be supplied National Car Leasing

Mini-Lease National Car Leasing

Very similar to daily rental but for a minimum 28 day period with options to roll over for as many 28 day periods required. This is usually significantly cheaper than daily rental. The vehicles supplied by teh National Car Leasing company are normally new or nearly new.

National Car Leasing