Personal Car Leasing vs Salary Sacrifice
If you’re looking for a new car and are interested in leasing, you may be eligible for a personal car lease or a salary sacrifice scheme. We’ve compiled this guide to explore the pros and cons of both options so you can make an informed decision when leasing your new vehicle.
What is the difference between a personal car lease and a salary sacrifice car lease?
Personal car leasing and salary sacrifice are cost-efficient ways of sourcing a new car, but what are the differences?
Personal Leasing
With lower upfront and monthly costs than other methods, like personal contract purchases (PCP), personal car leasing is a popular method of financing a new car. Personal car lease contracts most commonly range between 24 and 48 months. When your lease contract expires, you simply return the car to the finance provider and order a new vehicle.
Salary Sacrifice
A salary sacrifice car lease is a benefit companies offer that allows employees to exchange a percentage of their salary for a non-cash benefit – in this case, a car. Like a personal car lease, you control the contract terms, including mileage and duration. When the contract ends, you hand the car back. This finance method is most popular when leasing electric or hybrid cars, as HMRC requires the engine to produce less than 75g/km of CO2 emissions. The employee is subject to a benefit-in-kind (BIK) tax with a salary sacrifice lease. This means that low BIK rates of 2% for the 2024/25 tax year offer compelling savings on pure electric vehicles.
Am I eligible for personal car leasing?
If you have a good credit score and a valid UK driving license, you are likely to be approved for personal car leasing. During the application process, you must pass a credit check, which will examine your financial history and current affordability.
Am I eligible for a car on salary sacrifice?
Salary sacrifice is only available to employees of companies that offer the scheme. Lower wage employees may not be eligible for salary sacrifice if the scheme would reduce their earnings below the National Minimum Wage. Additionally, companies may have rules on who qualifies for salary sacrifice, so the best option is to speak to your employer.
How much does it cost to lease a car compared to salary sacrifice?
Initial Rental
Personal leasing requires an initial rental, an upfront payment towards your total lease cost. The initial rental is flexible and based on your monthly payments, which are deducted from the overall lease price. Salary sacrifice doesn’t require any upfront payments.
Monthly Costs
The car’s on-the-road value determines your monthly costs. You’ll be able to find personal lease deals that offer significant savings, whether you’re after a petrol, diesel, hybrid or electric car. However, salary sacrifice deals with Synergy are only available on electric or hybrid vehicles, as they produce minimal CO2 emissions. Cars financed using this method become company cars, so anything other than these engines attracts higher BIK rates, also known as company car tax. This scenario often offsets the monthly savings you will gain compared to a personal lease.
What are the advantages of leasing a car?
Personal lease costs are often lower than other forms of finance on petrol, diesel, hybrid or electric vehicles. As we fix monthly costs, you will know exactly how much you will pay, making budgeting simple. Manufacturer warranties cover personal leases, giving you protection against any manufacturing issues with the vehicle. As you won’t own the car at the end of the contract, there’s no need to worry about depreciation. You can simply hand the car back and move on to your next option.
What are the advantages of salary sacrificing a lease car?
The main benefit of salary sacrifice is that you get more car for your money. Your employer subtracts payments from your wage before deducting any tax, reducing the amount of Income Tax and National Insurance you pay. Also, your employer will deal with the scheme provider, lease payments and taxes, so you don’t have to.
What are the disadvantages of leasing a car?
Like renting a house instead of buying, you won’t own the leased car, hence the lower monthly payments. You won’t get anything at the end of the contract and will need to either renew the lease or find another option.
What are the disadvantages of salary sacrifice car schemes?
The car is tied to your employer. If you decide to leave the company or your employment is terminated, you will also lose the car. Also, depending on the agreement between your employer and leasing company, you may not have the selection of vehicles you would with a personal lease.
Personal car leasing vs salary sacrifice car leasing
| Personal Car Leasing | Salary Sacrifice Car Leasing |
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Ultimately, the decision on whether to opt for a personal car lease or salary sacrifice depends on the individual’s situation and requirements. Both are great ways to get behind the wheel of a new car. Feel free to contact our dedicated team to explore your options.
