Hire-purchase (also referred to as “leasing” in this article) and bicycle renting are two simple and very accessible financing methods that enable employers who so wish to offer their staff the opportunity to spread the financing of their bicycles over time (generally 36 months), starting with part of their gross remuneration (rather than buying their bicycles all at once, starting from their “net pocket”).
How to choose the “best suited” financing method? This article aims to clarify the advantages of each formula.
Hire-purchase: the term “leasing” is commonly used to designate hire-purchase. This is also the case at Ubike. This is a form of financing that can be spread over a variety of terms (between 24 and 48 months, with 36 months being the norm), and which provides that all the monthly payments invoiced by the provider to the employer represent 100% of the price (in theory therefore: residual value = 0%). When the employer pays the last monthly instalment, the title of ownership is transferred automatically and free of charge to the employer, who then has the option of transferring it in turn to any employee who so wishes. To do so, the latter will have to pay (initially out of his or her own pocket) an amount representing on average +/- 6% of the recommended retail price of the new bike. For legal and tax reasons, employers are not allowed to “give the bike away for free” to their employees.
Renting: this method of financing can also be spread over various durations (between 24 and 48 months, with 36 months again being the norm), which provides that all the monthly instalments invoiced by the provider to the employer represent 84% of the price (Theoretical Residual Value = +/- 16%). When the employer pays the last monthly instalment, the employee concerned has the choice of whether or not to acquire ownership of the bike by paying (out of his or her own pocket) the estimated value of the bike on the bicycle market at that time.
The Belgian administration authorizes employers to make bicycles available to their staff on favorable terms.
In practice, employees can choose a bike by opting for a “salary sacrifice ”*. This mechanism makes it possible, on the basis of a recalculation of the gross salary, to devote part of it to financing a bicycle. Neither the employer nor the employee will have to pay any deductions or social security contributions on this “isolated” part of the salary.
In simple terms, this means that the employee benefits from “gross for net” for this part of his or her salary. In this way, he will pay +/- 50% less for his bike vs. a classic financing situation, excluding the bike plan via his employer.
*Financing can also be done by “defiscalising” all or part of the end-of-year bonus, or a bonus, etc. Financing via the mobility budget is yet another possibility to which this article does not apply.
- Hire-purchase and Renting: Contracts from 24 to 48 months.
- Hire-purchase: cascading transfer of ownership, from the provider to the employer, and then concomitantly to the employee who so wishes.
- Renting: choice for the employee to acquire, or not, the bike at the end of the financing period.
- Hire-purchase: payment of around 6% of the initial price of the new bike for transfer of ownership.
- Renting: Residual value of approximately 16% of the initial price of the new bike for the acquisition of bike ownership.
Please note: this amount is not known in advance, at the start of the financing period. In fact, it will depend on the bike's market value at the end of the lease.
- Hire-purchase: Slightly higher monthly payment (as it is calculated on 100% of the price), but lower total cash outflow (as only +/- 6% is payable at the end of the contract at the end of the net).
- Renting: Slightly lower monthly payment (because calculated on 84% of the price) but higher total cash outflow (because much higher amount to be paid at the end of the contract on leaving the net).
- Hire-purchase: “ON balance”, the bikes thus financed appear on the employer's balance sheet
- Renting: “OFF balance”, the bikes thus financed do not appear on the employer's balance sheet.
Services Included:
- Administration, insurance, maintenance available for both options.
This table should help you make the best choice for you.
You'll notice that a 3rd financing method is also presented: purchase.
Ubike notes that the 2 financing methods presented are frequently used.
Employers who prefer hire-purchase generally do so for the following 2 reasons:
However, renting remains the norm in today's Belgian market.
For more information, please contact Ubike.
