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Contract Or Purchase? - Which Is Best For YOU?

Sifting through the minefield of information can seem like a second job so here is our guide to help you through the process.

Updated

Updating your car can bring the dilemma of whether to contract or purchase.  Choosing which is best seems to generate significant and animated debate.  It largely depends on the car you choose and your needs as an instructor.  Once these are determined, then some basic maths can determine whether or not buying or leasing is best for you. 


How much does it cost to run my vehicle if I purchase?
The owner-driver route can seem attractive as you will eventually own your vehicle outright.  You can work out the average yearly cost using the following ‘common sense’ formulae: 

Average yearly cost = Cost of car – Predicted future value + Interest + Maintenance 
                                                          How long you are planning to keep the car for in years


Cost of the car.  It is not uncommon nowadays for new cars to cost £15k+. There has been a massive increase in cost over the last ten years but negotiating from the advertised price will help.  Don’t forget about the extras such as spare wheels (not always standard in modern cars).  If you plan to keep the car after the standard manufacturers’ warranty expires, checking both mileage and vehicle age restrictions, extended warranties are worth looking at.  Of course you will need dual controls and suppliers such as He-man have a directory of ‘local’ mobile fitters.


Predicted future value. Be realistic about the likely resale value of your vehicle with your predicted final mileage.  Online sales sites such as Autotrader can help to give you an indication.  Bear in mind that cars with high mileage hugely depreciate especially as they will probably be out of warranty e.g. a two year old car with a 60k mileage will be worth about 40% of the manufacturers’ list price.  Used cars can depreciate less but the maintenance spend tends to be more, so a careful balance will need to be achieved.


Interest.  If you have not saved the money, you will need to factor in the cost of borrowing.


Maintenance.  You will need to be realistic regarding maintenance costs, not just servicing but other consumables such as brake pads and discs, tyres, clutches.  Also consider what happens if the car needs repairing.  High average annual mileage coupled with an ageing vehicle contributes to accelerated parts replacement with repairs taking longer as parts become obsolete.  This can be a large unforeseen cost, so you will need to have ‘rainy day’ funds readily available at short notice to keep you on the road. 


Other things to consider.  Factor in what you will do if your car if off the road for a period of time.  Will you hire a costly temporary vehicle or will you take time off, grinding your business to a halt. 
When you purchase a vehicle, it becomes an asset of the business as soon as you take possession even though you won’t own it until you make the final payment.  You will often be committed to lengthy finance periods (sometimes as long as five years), and generally it requires a heftier deposit, tying up precious capital.  If it is a PCP deal there will also be a large balloon payment, sometimes more than the car is worth so you can be in a negative equity situation.  You may be able to claim tax relief against your capital allowances.

   
So what about contract hire? 
Contract hire deals can often be secured for an administration fee of a few hundred pounds and for a set monthly rental the leasing firm hires you a car for an agreed period of time, typically up to two years.  At the end of the agreement provided that the car hasn’t gone over the mileage allowance that was originally agreed and is in a reasonable condition, the car is simply handed back. 
Not all contract hire schemes are the same so you will need check to what is included.  Specialist driving instructor contract hire schemes tend to have similar offerings but how they provide these services may differ.  These inclusive packages include everything from service, maintenance and worn tyres, the vehicle fitted with dual controls, breakdown cover and replacement vehicle with dual controls should yours have to come off the road. Free of charge nationwide delivery is often included.
However some non-specialist companies may not include the same services within their contracts, even if they are called ‘maintained’.  To help compare different deals use our contract hire checklist.

Finding the right contract hire for you:

    Is it really contract hire?  Don’t confuse with purchase schemes such as personal contract purchase (PCP).

    What is the length of contract?  Keeping the car within manufacturers’ warranty, even if it is on a maintenance package, will generally provide you with a better experience.

    Confirm all costs and when they are due:  Any initial payments, regular payment amounts and frequency, and any end of period costs, such as excess mileage, just in case.

    What’s included in the package? Does it cover servicing, maintenance, dual-controlled replacement if your car if off road, breakdown cover, dual controls supplied and fitted.  Is there an option for driving school insurance.  What is the fair wear and tear policy? Does the package include free nationwide delivery?

    What are the end of contract options? Is the renewal process made simply for you as an existing customer?  Is there an option to purchase the car after? What happens if you do not take another contract?

After you have compared all the lease options available, and have a list of prices, it’s really important that you consider customer service and aftercare. This is just as important as the car you are leasing. Do you get the sense that this company will look after you once the contract is signed?  Have you checked other people’s experiences of using that particular driving school lease hire company?  Are they selling on price only, or do they know about the different products that they are offering so you can make an informed decision?  The process of replacing your car with a contract hire vehicle can be straightforward and stress free as long as first class service and understanding of the driving school industry is all part of the package.  A good contract hire company will go though all potential questions even before you have thought of them, particularly if the package is specifically designed with the driving instructor in mind.

As contracts tender to shorter than purchase schemes you can update your vehicle regularly allowing you to keep up with the latest technology and safety features aswell as keeping a professional image for the school.  Also, the monthly payments can be offset against your companies’ taxable profits.

Being flexible can bring its advantages
If you are not tied to a specific vehicle, being flexible regarding the manufacturer can help you achieve the best deal. Once you decide the size of car, the preferred fuel type, your vehicle equipment requirements (both in terms of wants and needs) and your preferred contract length, you can shop around for the best deal.  Flexibility can result in savings of hundreds of pounds.  Taking a slightly longer contract can help to ‘fix’ your cost, avoiding swapover days, insurance administrations costs and additional signage costs.  It can also avoid future price rises as car prices only tend to increase.

Don’t forget to choose a fuel efficient car 
Fuel economy is as important as the price of your next driving school vehicle (whether contract or purchase). Choosing a slightly cheaper vehicle with considerably less fuel efficiency could be false economy.  Whilst in our industry it is unlikely to get the manufacturers quoted MPG due to learners driving the vehicle for a majority of the day and the stop-start nature of our business, it is often a good place to start to compare relative fuel efficiency.
Particularly over recent years, manufacturers have introduced a range of new engine technologies with better fuel consumptions, ranging from new generation petrol engines  with 65+MPG, electric hybrids automatic engines with 80+MPG, and stop-start technology on both and diesel engines extending fuel economy by up to 20% up to 80+MPG.

So contract or purchase - the choice is yours 
Clara Gibson, General Manager at CA Cars commented “The best solution to source your vehicle will be unique to you, dependent on your preferences and tax position. Contract and purchase both have their advantages and disadvantages as do new or used vehicles. When weighing up the best option for you, it is important to understand what is included in the price and how much additional services that you want may cost. Going direct to the dealer can seem like the best option, by ‘cutting out the middle man’, however some companies can offer a large discount through buying large volumes of vehicles and through greater economies of scale may be to give you a better, cheap deal together with invaluable advice.”

Here at CA Cars we offer both contract hire of new and used vehicles aswell as sale of new cars at huge discounts and our ex-contract hire vehicles at trade prices. Our staff are happy to guide our customers through the process to decide which option and vehicle is best for you.

 

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