Monthly Rentals Explained

Monthly rentals are the equivalent of monthly payments when you take out a car leasing contract. To find out more about monthly rentals, read the following guide.

Creditplus Definition of Monthly Rentals

When you sign up for a car leasing agreement, the payments that you make each month are referred to as monthly rentals. They are the equivalent of monthly payments on a normal finance agreement such as hire purchase, however because it is a car leasing agreement the amount that you pay does not act as payment for the asset – you are simply leasing it from the car leasing company. It works in the same way that you would rent a house.

Monthly rentals are usually calculated based on the difference between the value of the vehicle at the beginning of the contract and the residual value (what the vehicle is worth at the end of the contract). VAT is then added to this figure because car leasing agreements such as contract hire are not considered to be finance products, and are therefore applicable for VAT under UK government law. This makes leasing agreements particularly attractive to businesses as they may be able to claim the VAT back.

Finally, there will be some interest added to this figure, as agreed by the customer and car leasing company in the car leasing contract. This interest rate will be set out at the start of the agreement and included in the SECCI document you receive before you sign the deal.

An annual mileage limit is usually set on the contract to help ensure that the residual value of the car is protected. There is usually a fee if the annual mileage limit is exceeded, working out as a few pence for every mile you go over the limit. There are also often condition requirements and you may be required to service your vehicle at specific garages and mechanics.

Monthly Rentals vs Monthly Payments

There is very little difference between monthly rentals and payments, except for the mileage and condition limits that may be in place. What’s more important is finding the right finance package for you, rather than focusing on the type of monthly payments. Car finance vs leasing a car is a decision you will have to make during the application process. The benefits of car leasing is generally lower monthly payments and the option to start a fresh leasing deal and choose another car at the end of the agreement, whereas with a car finance package, you get to keep the car at the end and there is no concern over mileage or condition restrictions.

 

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