If you’re using a lease to drive your new car, you need to be aware of the potential charges that you could face at the end of your car leasing agreement. That’s the advice of a leading car lease and contract hire expert who believes that millions of pounds are being added to the cost of cheap leasing deals every year in so-called ‘de-hire charges’.
These charges often occur when your vehicle has been returned with minor damage. Keep reading to find out more.
End of lease charges adding millions to the cost of car leasing
Business Car Manager reports that, in 2012, the UK’s top 50 contract hire and leasing companies estimated that end-of-lease damage charges collectively added up to £45 million to fleet budgets.
Jim McNally from vehicle leasing and management company Alphabet, told the recent ACFO Conference for fleet and company car managers that companies needed to liaise with their car lease providers to control end-of-contract damage charges.
And, it’s not just businesses that are facing high end of lease fees. ‘De-hire’ charges affecting private contract hire and car lease customers are also running into millions of pounds.
What are ‘de-hire’ charges?
End-of-contract charges – or de-hire charges – are an additional payment that you will make to a car leasing company if you don’t return your vehicle to the leasing company in the condition outlined in your lease agreement.
For example, returning a car with damage to alloys and scratches or Part Exchanges to the bodywork will often result in additional charges.
When signing a car lease agreement, look out for this condition. These charges are sometimes called ‘de-hire charges’, ‘fair wear and tear charges’, ‘end of lease charges’ or simply ‘damage charges’.
Business Car Manager cites the example of a BMW 320d Efficient Dynamics. Experts CAP predicted a residual value (at the end of a car lease agreement) in ‘clean’ condition of £9,950 at three years/60,000 miles (May 2013). However, the residual value would be £9,400 in ‘average’ condition and £8,800 in ‘below average’.
Mr McNally, the car leasing expert, said: “A £1,150 reduction on a car worth less than £10,000 is significant.
“De-hire damage is the biggest cause of dispute between leasing companies and their customers. Inspecting vehicles 10-12 weeks before end of contract means fleet managers have the opportunity to mitigate end-of-contract damage charges.”
There are various steps that you can take to ensure you don’t face any additional charges at the end of your car leasing agreement:
• Have your car appraised three months before the end of the lease and deal with any damage
• Ensure your car or van is serviced in accordance with manufacturer schedules. Mr McNally says this is ‘key to a vehicle retaining its value’
• Make sure you have both sets of keys for the car. Non-return of keys can also add significant charges at the end of your car lease
Make sure you tell the car leasing company what you’ll be using the car for
Mr McNally, who is also chairman of the British Vehicle Rental and Leasing Association’s Residual Value and Remarketing Committee, said: “Leasing companies don’t want to have end-of-contract charges. We would rather price for vehicle usage appropriately at the outset.
“If a fleet is going to use a vehicle in a quarry then don’t tell us that it will be used on the motorway because we will build the price strategy against that usage.
“Talk to your leasing provider who will structure a rental that works for you and them.”
Finally, he reminded company car operators that the non-return of keys – both the master key and the ‘slave’ key – was a further ‘significant’ end-of-contract additional charge for fleets.
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