22 August 2022
Which Is A Cheaper Way Of Driving: Salary Sacrifice Or Personal Lease?
Running a motor vehicle is a big commitment and there is a lot to think about. It might be a long-established desire to drive the car of your dreams, but the reality is that the cost of this can be prohibitive. As well as the cost of the car itself, you have things like insurance, service & maintenance, road tax and breakdown cover to think about. We know that car ownership is not a cost-effective model for driving, because of the cost of depreciation of the vehicle, but then when you consider a salary sacrifice scheme offered by your employer, compared to a regular personal lease scheme, which is cheaper?
Of course the big selling point of a salary sacrifice scheme is the saving you make on income tax and national insurance payments, because the salary deduction is taken from your gross salary. However, this only applies to zero-emission electric vehicles (EVs) and there is a common perception that EVs are more expensive than petrol or diesel vehicles, but that is not necessarily the case. In fact, when you compare a salary sacrifice scheme to a personal lease scheme, there are considerable savings to be made if your employer offers you a zero-emission EV through a salary sacrifice scheme, and we’re about to explain how.
How is a salary sacrifice scheme cheaper than personal lease?
Fundamentally, a salary sacrifice scheme works out cheaper for the motorist because all their motoring costs are included in one inclusive price, which is the portion deducted from their salary. With a personal lease there are a number of additional costs over the course of the lease which need to be taken into account, and which make the overall cost much more expensive, and in fact over a typical three-year lease this could range between £1500 to £3000 more expensive. On an annual basis this equates to £500 to £1000 cheaper, or £40 to £80 monthly. Of course this all depends on what model of car you opt for, but here we break down where these savings can be found in a salary sacrifice scheme.
Cost comparison of a salary sacrifice scheme and a personal lease
Deposit – for a personal lease agreement you need to pay an upfront cost which often equates to 12 months’ payments, and is a considerable sum which you may need to save up for or dip into savings to afford. However, with a salary sacrifice scheme there is no deposit required.
Lease cost – the personal lease agreement wins out here, but only because there are a number of running costs which aren’t taken into account in the monthly lease cost. So on the face of it a personal lease may look more attractive, but a monthly lease cost of, say, £200, doesn’t factor in wear & tear, service & maintenance and insurance. With an EV through a salary sacrifice scheme you have a charger included and all those running costs included in one fixed price of, say, £300 per month, and are exempt from paying road tax due to zero emissions.
Service & maintenance – petrol and diesel cars are tried and trusted and reliable, but there is more that can go wrong with them. EVs are a rapidly advancing technology and with much fewer moving parts there is much less that requires service and maintenance. And with service & maintenance costs factored into your salary sacrifice deduction, you will be paying much less per month compared to a personal lease agreement.
Tyre wear and tear – tyre condition is critical from a safety and fuel efficiency standpoint, and you typically have to replace them every couple of years due to wear and tear, and they are one of the most common factors in a vehicle failing an MOT. With a salary sacrifice scheme you are covered for punctures and damage via your breakdown cover and for replacement tyres in your service and maintenance costs. And once again this is all factored into your fixed price.
Breakdown cover – a typical breakdown cover agreement will include home recovery, roadside assistance, national recovery and parts & repair. This all adds up when getting quotes online, but with a salary sacrifice scheme this is already included in your fixed cost.
Insurance – another motoring essential is insurance, and every year you need to spend time getting quotes and changing your policy. There is no need to do this with a salary sacrifice scheme because insurance is already included in your deal.
Fuel – again this depends on the vehicle you ultimately choose to drive, but typically the cost per mile for an EV can be around one third of the cost of petrol. A lot of this comes down to the option you have to charge your vehicle at home overnight via a cheaper energy tariff. And with a salary sacrifice scheme you also get a home charger included, so there are no additional set-up costs.
So it is easy to see where the annual savings come from when comparing a salary sacrifice car scheme to a personal lease agreement, and if you want to find out more, contact Pink Salary Exchange today. And this is without also considering the saving you are making each month on reduced tax and national insurance payments, and your carbon footprint. And another factor you can’t really put a price on is hassle. How much easier is your motoring without having to get quotes, remember to make payments, query prices and find paperwork? A salary sacrifice car scheme makes sense from every angle, and is designed to bring the joy back into motoring, because you have the car you always wanted, and have literally nothing else to worry about.