So, you have a budget to spend for a new company car. You don't do mega miles and you work hard so you want something good to drive around in but your boss is a little tight on car allowance or your budget for a company car so you only have £300-350+VAT to spend per month.

Normal convention would steer you to something sensible like the KIA, Hyundai or even a Skoda at a push but you may not have considered a Mercedes, let alone an E-Class. Thats the car your boss drives around in...

Before we go any further it is necessary to understand how leasing, specifically contract hire works. Basically, it is a contract typically for 2-4 years after which you hand the car back. A bit like hiring a car when on holiday, only much longer.

You pay an initial rental (a multiplier of the monthly payments) typically a 3+ and then the subsequent monthly payments 23, 35, or 47 months.

What you don't get to see, or know, is what goes on in the background. This is the 'dark art' of being a car and finance broker. They know where the best rates for finance are, where the cheapest cars are, what manufacturers are pushing what cars (by way of financial support), and perhaps most importantly what vehicles have the best residual value.

So, to go back to the question, can you really get a Mercedes E-Class for the same price as a KIA Optima? Well lets see.

A quick trawl of the 'net reveals a top-of the range KIA Optima can be taken on Contract Hire (3+35 doing 15,000 miles per annum) for around £330+VAT per month. A word in the shell like of our favourite broker reveals a Mercedes E-Class on the same terms would be the same price! So the answer is YES, you can get a Mercedes E-Class for the same price as a KIA Optima.

How is this possible you ask? Well in this case it is down to deals coming from the manufacturer, and funder and the buying power of the broker concerned, and one other key factor, residual value.

Why is residual value so important? Contract Hire works by taking the finance companies purchase price of a car (after their substantial discount) and working out the value of the car to the trade at the end of the lease. The difference (the depreciation) is the amount the customer will fund over the term of the lease (plus interest). Essentially, you could be said to be taking a loan against the depreciation of a vehicle (plus interest) over the term. A car with a greater residual value is worth more as a percentage of its purchase price has lower depreciation compared to a car with a lower residual value which has higher depreciation.

Confused? Well if you are lets break it down with a simplified example.

Car A costs £30,000 and in 3 years will be worth £15,000. The depreciation is £15,000 which financed over 3 years would cost £395/month (on a 3+35 agreement not taking into account interest).

Car B costs only £25,000 but in 3 years is only worth £10,000. The depreciation is again £15,000 which would cost the same as car A to finance, but you are getting a car worth £5,000 more for the same price.

So, there you have it, you can contract hire a E-Class for the same price as a KIA Optima. Or you could lease a VW CC for less than a Mazda3, or a Golf R for less than a top of the range Nissan Juke

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