While we all like to own our own vehicle, often lack of immediately available funds means that this simply isn t possible. In this scenario we generally have one of two options – either we rent or get a finance lease, or we choose the most burned out little clapper we can find on eBay… that then breaks two weeks down the line.

Obviously in this scenario most of us would rather rent a nice car than own one that will cost hundreds in MOT and services and be rather embarrassing to drive around in (there comes a time when quirky and dilapidated is less charming and more just sad…). But still, once you ve made that decision do you choose a commercial car loan or finance lease? The difference between the two is significant and will make a lot of difference to your own finances with the better choice depending largely on your circumstances.

Essentially a commercial car loan is exactly as it sounds, and you ll simply pay a monthly fee in order to keep the vehicle. This fee can be significant and usually around 3-10% of the value of the car (depending on the car and on the company) which will quickly add up to a significant amount, and within a few months you could most likely have bought an older but perfectly serviceable car yourself. Furthermore you won t have anything to sell once you terminate your contract meaning that all of that money will be lost. If you own a car on the other hand you will be able to sell it. Granted this will be for a fraction of the price you paid, but it will be money back from your investment nonetheless. In this sense the commercial car loan is not a great investment.

However before you make up your mind consider some of the benefits of the commercial car loan. For while you ll be paying a certain fraction of the value of the car, things you won t be paying include tax, MOTs, repairs or insurance (insurance will be often be included in the monthly payment at a lower rate). In this way the price you pay a month suddenly drops to a much smaller percentage of what you d be paying for a car in total. In this sense if you re on a tight budget you are much better off with a car loan. Similarly if you only need the car for a couple of months, it again makes more sense than buying a small old car, paying for tax and insurance and then selling it so soon afterwards.

The finance lease option however caters to a different market entirely. This is for people who want to buy a car that is just outside of their current budget, and so offers them the option to pay their money back over a set period of time. This obviously means they will be paying slightly more in interest, however it also means they can afford a slightly better vehicle than they otherwise would be able to. In all other aspects the car is theirs; they will have to pay for insurance and tax as normal but it will still be theirs to sell at the end.

To answer the original question posited in the title then – car hire is best as a short term budget option, while finance lease is better for those who want to invest in a slightly nicer vehicle than they can currently afford.

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