The vehicle is hired for a fixed period without the option or risks of final ownership. Monthly rentals are based on the difference between the initial value of the car and projected residual value, plus finance charges. So only a proportion of the vehicle’s costs are repaid. This improves cashflow and means you avoid making a large outlay.

In addition, the payments are allowable against taxable profits and VAT is reclaimable, depending on use. At the end of the agreement, the vehicle is returned to the leasing company and there are no additional costs on the return of car, assuming there has been no excess mileage or wear.