Leasing can be a tax effective means of financing cars for selfemployed and for companies because the annual payments are 100% deductible as an expense.

In contrast when a car is purchased only 12.5% of the price is allowed each year for depreciation and spread over eight years.

Then compared to an ordinary car loan, the monthly leasing payments can be lower because you are not paying the full price of the car but only for its depreciation plus interest.

Leasing can have its downside in terms of the free use of the car. Because the finance company retains ownership, it can repossess it more easily if you miss some repayments.

Most lessors require a 10% deposit or one to three months down-payment which will then be deducted at the end of the contract.

There are then three options.

1. With a standard lease, the vehicle is returned to the leasing company, which will sell it to a third party.

2. The period of the original lease can be extended by paying a nominal fee.

3. Should you wish to keep the vehicle, you might negotiate a purchase price with the lessor.

Leased cars need more care as costs can be imposed for excessive wear and tear, and if you pull out of the agreement early. All leases have mileage limits and, according to Motornet. ie, anything in excess of these limits can cost about 6c to 10c per mile.