How leasing can enable you acquire your dream vehicle

A number of vehicles in the yard. (PHOTO/File)

KAMPALA – World over, vehicle leasing is an old practice where buyers are able to pay a fixed amount of money to use a vehicle for a fixed period of time.

A lease is a contract by which one party transfers land, property and services to another for a specified time, usually in return for a periodic payment.

The choice on leasing a vehicle depends on whether you are buying it for yourself or for your business, and also on the benefits you are likely to enjoy along the way.

The types of vehicles given out as lease assets vary from one lessor (person who leases out) to another and can include trucks, lorries, tractors, personal vehicles and special hire taxis.

For instance, according to Mr Steven Lukwago Ssentongo, manager leasing at dfcu Bank, they lease out every type of vehicle as long as it can be supported and fits within its credit policy.

In such cases, some of the credit policies stipulate that the vehicle should not be older than a certain age.

“For heavy vehicles that carry heavy goods, it should not be more than 10 years,” Mr Lukwago says.

 “Ideally, we do not lease vehicles that do not do after sale services. If you cannot walk downtown and get a spare part or have a prominent supplier like Toyota, we will not enter into any leasing agreement with you because if it breaks down, you will not be able to service it and you will not be able to repay,” he adds.

According to Mr Paul Mbugua, the chief executive officer Eclectics International, one can opt for a finance lease or an operating lease. Under the finance lease, one takes the vehicle but is responsible for the risks and rewards related to owning the vehicle. With the operating lease, risks and rewards related to ownership of the vehicle rest with the lessor. For this lease, the lessor remains with the vehicle after the lease period.

The difference between these two is that the lessor retains the asset.

“That means depreciation, among other costs, is booked because that is his asset. The benefit to the lessee as a person is basically that he is not affected by depreciation; he is renting a vehicle, he pays installments, returns the vehicle and is not affected by the residue value of this asset,” Mr Mbugua explains.

How leasing works

The whole aspect of leasing involves clients hiring or purchasing vehicles from companies that have bought them on their behalf.

A vehicle could be worth Shs70m if one pays cash immediately.

However, when one goes into the leasing process, especially with a view to buying the vehicle at the end of the lease, they have to understand that it is a partnership and a company may finance up to a maximum of 80 per cent and on a rare occasion, 100 per cent of the budget while the buyer meets the 20 per cent cost.

The lessor will apply operational costs and the cost of funding.

Whenever a lessee (the person taking the lease) pays the monthly arrears, he or she is purchasing the vehicle gradually per month. The higher the percentage contributed per month, the less one has to pay at the end of the day.

To qualify for the lease, Mr Mbugua says the easiest way is to show that you have a good source of income to be able to pay back. If the vehicle you are acquiring is going to be used for a business, the better. The lessor will require memorandum and articles of association, certificate of incorporation, financial card, audited financial books, management accounts and cash flow projections.

This in conjunction with the business’ cash flow statements helps the lessor to determine the lessee’s ability to pay back.

“Your ability to pay may not exist right now but when we look at your cash flows and what you are going to do for instance you have a contract to transport for Hima for a period of six years, we look at that and how much they will pay you and draw up a payment plan,” Mr Lukwago says.

Payment schedules are very critical. If need be, the lessor can create a custom made payment plan based on what the lessee does.

Advantages of vehicle leasing

According to Mr Lukwago, the main reason for leasing vehicles is conservation of cash flows.

“By conservation of cash flows, we basically say; let us buy it on your behalf, you remain with the money which you are supposed to be paying for the purchase such that you can use it for other purposes,” he explains.

Secondly, with the aspect of repayment, if one leases the car and pays to the bank, one receives a certain percentage from the bank that he or she can reclaim from Uganda Revenue Authority as value added tax. Therefore, there is a certain percentage that goes back to the lessee unlike when one takes a loan to purchase the vehicle.


When it comes to leasing a vehicle, you have to be knowledgeable about vehicles. Mr Lukwago says those who even lack the basics about vehicles should go along with mechanics from garages to make an informed choice.

Leasing is common with firsthand vehicles but with a market like Uganda’s that is flooded with used vehicles, one has to be cautious. Second hand vehicles that have been used for three to six years at times have various issues and it is for this reason that experts recommend that an external valuer looks at the vehicle, comes up with a report, highlights the flaws and quotes a price for the vehicle.

“The gentleman selling to you in the bond will say Shs25m, but then this guy values and says in my estimates based on the current price, it is about Shs22m based on the fact that this and that are missing,” Mr Lukwago explains.

While you are doing your research on the vehicles, try to negotiate, rather than being pushed to the wall.



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