By Tim Bowden, head of operations, Hitachi Capital Vehicle Solutions
EVER got a nasty surprise at the end of a lease period with a letter?
It says you owe the leasing company more money for the car you’ve just returned.
Most companies may have experienced this at one time or another.
But there are simple ways of ensuring that you avoid such ‘end of lease’ charges.
A large component of the monthly leasing cost is calculated based on the depreciation of the vehicle. This is the forecast value (residual value) of the car at the end of the contract hire period. It determines the amount of depreciation from the new vehicle price.
Crucially, the residual value is calculated based on the car being returned in the appropriate condition for its age and mileage. In much the same way as a private sale, a car in poor condition won’t achieve its true market value.
It’s important to understand that leasing companies carry the risk in any difference between their forecast residual value and the current market value.
End of lease charges therefore exist to reflect only the loss in sale proceeds resulting from the car being returned in a condition that affects the value achieved.
Reputable leasing companies adhere to the BVRLA “fair wear and tear policy”. This is an industry standard which identifies the condition that a vehicle should be returned in.
Hitachi Capital uses two independent companies to produce end of lease inspection reports. One covers cars and small vans; the other deals with specialist vehicles and lorries.
Their findings dictate the level of end of lease charges. There is an expectation that cars will come back without major dents and scratches. There is a little more leeway for commercial vehicles. Some additional wear and tear is to be expected on vans and lorries.
So what can you do to minimise end of lease charges?
Maintain the car in a clean and tidy condition. This will make the extent of any damage clearer to identify. And enable suitable repair to be undertaken during the course of the contract.
Repairs to special option colours can be more costly. Unusual colours – particularly shades of green and brown –are much harder to match. So it’s worth considering this when you take out a contract.
Maintain the car throughout the life of the contract. Ensure your company car policy places responsibility for weekly oil level, tyre pressure and bodywork checks with the driver.
Ensure your drivers report any incidents, however minor the damage may look. Take any third party details and get the damage checked out by a bodyshop before the vehicle is returned.
Remember: a chip in a windscreen will crack eventually. It’s cheaper to get a smart repair done immediately rather than wait until you need a whole new windscreen and have to pay an excess. The same applies to small scratches. Don’t leave them to deteriorate further.
Get dents and scratches repaired by your local body shop – as long as their work is to an acceptable standard. Recharges can arise due to the poor quality of a previous repair.
You have the right to get an inspection carried out by an independent qualified engineer. The engineer will use BVRLA guidelines on fair wear and tear. This is worth considering around five weeks before you are due to hand the vehicle back. Especially if you are uncertain if the damage on a vehicle will incur charges
Further information
For windscreen repair advice, read Top Tips: save money and repair a windscreen
To access the BVRLA’s Fair Wear & Tear document visit www.bvrla.co.uk
