Company car and van lease costs are rising on the back of higher Bank of England interest rates.
The Association of Fleet Professionals (AFP) said members were widely reporting higher costs – especially for vehicles already on order.
Denise Lane, board director, explained: “Businesses are waiting on the delivery of an historically large backlog of vehicles because of ongoing production issues and some leasing companies are increasing their lease rates on these because of the higher base rate. Typically, the increases are around 1.5% with a low of around 1% and a high of 2%.”
The AFP added that most leasing companies were generally being very open and transparent about the cause and providing calculations to show the additional interest. These take the Bank of England base rate at the time of the vehicle order and the equivalent figure now, then apply the difference of the outstanding average capital.
But the industry board warned that while the hike in rates is the result of financial factors completely out of the hands of the leasing suppliers involved, it does create problems beyond the higher costs themselves.
“For example, the increases may move vehicles between company car bands or mean that the lease rate exceeds employee entitlements.
“This creates some difficult decisions about whether to keep the vehicle on order, especially if a build or delivery date has been provided, or whether to start the ordering process again from scratch for a lesser vehicle choice, which could result in the loss of previously agreed manufacturer discounts and will almost inevitably mean a further delay.”
Lane added that if the Bank of England increased rates still further in the coming months – an increasingly likely scenario – it would almost inevitably mean additional rises.
“With inflation running at over 10%, the Bank of England has already signalled that further base rate rises are almost certain, which will mean further knock-on increases in vehicle lease rates before the end of the year and possibly more in 2023.”
