Car Leasing – How To Avoid End Of Contract Charges

Watch out for Fair Wear & Tear End Of Contract Charges

Let’s start by finding out exactly what is meant by Fair Wear And Tear.

Maintaining your vehicle and caring for its physical appearance will help to reduce or eliminate De-Hire charges at the end of your contract. With Car Leasing, it is vitally important that you look after your lease vehicle, in order to minimise the possibility of end of hire charges which may be imposed by the leasing company. Fair Wear and Tear is a term used to describe the acceptable deterioration in the condition of a vehicle due to normal usage. It should not be confused with damage to a vehicle caused by inappropriate use, negligence or impact.

De-Hire Charges (or End of Lease Charges as they are also known) are charges made by the leasing company if your vehicle is returned outside the Fair Wear and Tear guidelines and is in need of repair or renovation. Basically, your vehicle should be in a condition relative to its age and mileage with no mechanical or visible defects.

So why do we have End of Contract Charges?

End of contract charges are meant to compensate the leasing company if a vehicle is returned in a poorer condition than expected, taking into account its age and mileage. In other words, if the condition of the vehicle cannot be considered Fair Wear and Tear, there is likely to be a charge.

De-Hire charges are necessary because in setting the monthly rental for your contract, the leasing company assumed that your car would have a certain value when it disposes of the vehicle at the end of the lease. If you do receive end of lease charges, you may be able to negotiate with the leasing company if you think they are unfair.

How can you prevent De-Hire charges?

Your lease car must be returned in a safe, legal and reliable mechanical condition, capable of passing an MOT test, with all safety features such as parking sensors in working order. It should also have no serious physical damage. You should thoroughly inspect your vehicle two or three months before it is due for return. This will give you time to rectify any problem you think might be beyond Fair Wear and Tear. Don’t forget to arrange for your personal number plate (if you have one) to be transferred to your new vehicle, as this could take a few weeks.

There are a number of specific things you should ensure to minimise End of Hire Charges:-

  • The vehicle should be in good working order in all respects
  • All tyres, including the spare, must meet the minimum UK legal requirements
  • There should be no rust or corrosion on any painted area
  • Visible dents and deep scratches on body panels should be repaired
  • There should be no tears, burns or other damage to the upholstery
  • All original equipment must be present and operate correctly
  • The exterior of the vehicle should be cleaned to facilitate inspection
  • The interior of the vehicle should be valeted and cleared of rubbish
  • The Service Book should be date-stamped by an authorised service centre
  • The two sets of keys that were originally supplied should be available
  • All Documentation including Service Book and Manual should be in the vehicle

As regards bodywork damage, what is considered Fair Wear and Tear does vary between leasing companies, so you should check the terms and conditions of your lease provider. As a general rule, small areas of chipping, including door edges, are usually acceptable, as are slight scratches and abrasions provided primer or bare metal is not showing. The British Vehicle Rental & Leasing Association (B.V.R.L.A.) has set out an industry Fair Wear And Tear standard to help drivers of leased and financed cars to reduce or eliminate De-Hire Charges.

Vehicle Collection at End of Contract will be arranged by your leasing company (usually without charge), and any obvious damage will be documented. It’s best to be present when the vehicle is collected, so you can make sure that you agree with the report on the vehicle condition at the time of collection.

What Are the Benefits of Leasing a Car? Learn 7 Benefits Right Now!

1. Leasing has many benefits, such as financing the entire amount of the loan, which means no down payment.

2. The payments are often less than they would be if you were purchasing a vehicle, because you are only paying to use the vehicle for a specified amount of time, rather than buying the vehicle so the cost is less.

3. Some leasing companies will require you to make the first lease payment up front, while some will offer car leasing deals in which you can have the vehicle for one month or more before making your first payment. It all depends on the incentives at the time.

4. You will receive low, easy to handle monthly (or bi-weekly) payments that won’t affect your borrowing power. Leasing can sometimes be considered an operating expense, which means you can often write off a portion of your lease payments when you do your income tax.

5. Leasing also offers flexible financing as you can customize your payment schedule, length of the lease and the terms to match your cash flow.

6. You will also be able to upgrade to a new model with the same (or more advanced) equipment for little or no difference in the amount of your monthly payments when your lease is up.

7. You will likely be able to afford a more expensive vehicle if you lease rather than if you buy, because with a lease you’re only paying to cover a portion of the cost of the vehicle, rather than paying to own the whole thing.

Equipment Leasing: Getting A Quick Lease Approval

Are you considering leasing equipment for your firm, but you are running out of time? Here are a few tips to make sure your company’s lease gets approved quickly:

Guard Your Company’s Credit Standing

Establish a pattern of paying invoices and bills on time. As with personal credit, a history of prompt payment is one of the most important criteria in extending lease financing. If your company has a dispute with a vendor or credit provider, try to resolve it quickly. Be prepared to discuss the status and reasons for the dispute in detail with the leasing company. Because many leasing transactions require personal guarantees of the principals, it is important that the principals also maintain good credit standing.

Prepare A Lease Package

Include information in the lease package that the leasing company might require. You should include a background write-up discussing your company. Discuss your company’s history, the business background of the principals and a detailed discussion of what your company does. Also include a discussion of the competition and your company’s accomplishments. Include company financial statements and tax returns, if available. Include a list of credit and trade references. Also include a list of the equipment you intend to lease along with some equipment literature. Finally, include a summary of the lease terms you are seeking.

Identify Credit Enhancements Ahead Of Time

Although you might not need credit enhancements for your lease, it will not hurt to identify them in case they are needed. Possible credit enhancements include: additional equipment collateral; cash equivalent collateral such as CDs, stocks, bonds and cash; other assets such as real estate, revenue contracts, intellectual property rights; personal guarantees.

Have Updated Financial Statements

Although financial statements may not be needed for transactions under $75,000, they are often required for larger transactions. Where possible, these statements should be prepared by a C.P.A. and audited. Most lessors want to see financials covering at least three years of operations and the most recent interim financial statements.

Have an updated business plan with projections. Show a forecast of revenues, expenses and earnings. Include the lease payments as an expense item under the assumption that the lease is approved. Include the key business assumptions used for the plan. Offer a summary of the projections, comparing them to historical performance.

Get Bids From At Least Three Leasing Companies

If you want a competitive lease transaction, it makes sense to get lease quotes from several reliable leasing companies. Look for leasing companies that specialize in the type of lease transaction that you are seeking. There are lessors that specialize in lease transactions under $ 75,000 for instance. Others specialize in certain types of equipment like cars, medical equipment or copiers. Investigate each lessor’s background and reputation. Establish a deadline for all bids. Once the bids are in, compare them carefully and look for any terms or conditions that might prove problematic.

Offer To Make Lease Payments Using ACH Debiting

ACH debiting is an automatic payment mechanism established by your firm, the leasing company, and your firm’s bank. It permits the leasing company to receive lease payments from your firm’s bank account on specified payment dates. This set-up is attractive to leasing companies because it reduces the cost of billing and collecting. Additionally, ACH helps alleviate collection concerns since it creates automatic, on-time payments.

Provide Credit References

Most lessors want to talk to at least three or four vendors or creditors about your company’s payment performance and adherence to other business terms. If you have done business with other lessors or lenders, include one or two of these as references. Provide the name and address of each creditor, the contact person and a phone number for each contact.

Getting an approval on your next lease transactions should not remind you of watching grass grow. You can expedite the process considerably by following these easy steps. Be prepared for a quick lease approval.