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Choosing the best way to acquire your vehicle can be confusing. However our quick but comprehensive guide to vehicle financing will simplify the process. On the right is a comparison of typical financing methods. Click on a finance type to see a more detailed explanation. If you would like to take your enquiry to the next stage, select a finance type then click 'Next >>' to tell us about your requirements. Our dedicated and experienced team are standing by to assist. |
| HIRE PURCHASE |
Possibly the most basic of all finance packages and still very popular with around one third of small fleets, where ownership is a priority. Hire Purchase takes the capital cost of the vehicle, deducts an up front deposit, then breaks the balance down into equal monthly payments. The user is the owner of the vehicle for tax purposes, so it can appear on the company balance sheet. The monthly payments are not subject to VAT. The main benefits of this method is the company has ownership of the vehicle and is not bound by penalties such as 'fair wear & tear' and high mileage charges. Variable Rate Higher Purchase is also available upon request. |
| FINANCE LEASE |
Finance lease offers many of the benefits of contract hire but with more flexibility. The customer also gets to retain any equity held within the vehicle, after the balloon payment has been settled. The customer is responsible for the balloon payment. Balloon payments are capped values which reduce the risk of negative equity at the end of the agreement, but are higher than those achieved under contract hire agreements. No penalties for exceeding the mileage limit, the only risk/penalty for the customer is that a higher mileage may effect the sale value. Conversely should the expected mileage not be reached, meaning the sales value of the vehicle at the end of the term is higher than expected, the customer benefits from the increased equity. The vehicle can be sold at the end of the term. The customer retains approximately 98% of the sale proceeds which can be applied against the balloon payment. |
| PERSONAL CONTRACT PURCHASE |
This is very similar to Contract Purchase, however the vehicle is registered under the driver's name and therefore may not incur Company car/benefit in kind taxation. This is an option for drivers 'Opting Out' of the company car scheme, whereby they receive cash replacing the lost benefits of having a Company vehicle. As before, monthly payments are made towards the vehicle with a pre-agreed resale value at the end of the agreement to protect against the risks of depreciation. As the funder is guaranteeing this amount the residual value position is likely to be less than could be achieved on higher purchase. Consequently the monthly rentals are often more. The company is not liable for maintaining the vehicle as it is registered to the driver. This saves the Company valuable time and money associated with running a fleet. As you know there are health & safety issues here. If the customer is using the car for business purposes, even if the car is owned by the individual, it is still the companies responsibility to ensure that it is in a road worthy condition. Some guidelines will have to be introduced concerning the type of vehicle being 'fit for the purpose intended' duty of care for the employee, and the maintenance ensuring the vehicle is safe and legal |
| CONTRACT PURCHASE |
Provides the option of buying the vehicle at the end of the agreement and can provide greater flexibility for companies when buying high value luxury vehicles. Using similar terms to contract hire, the agreement usually runs from 12 to 48 months with a final payment at the end, often referred to as a 'balloon payment'. If you do not wish to own the vehicle then the final payment is not made and the vehicle is handed back to the finance company. This is subject to a pre-arranged mileage limit and the vehicle being returned in good condition. However if you would like to change your vehicle, then you can trade-in against a newer one. If the company decides to include maintenance as part of the agreement, then this element of the payments will include VAT, although in most cases it is recoverable including servicing. |
| CONTRACT HIRE |
If you are looking to drive a new vehicle but don't want ownership, then contract hire may be an option worth considering. The monthly payments can be spread over similar terms as with other methods, and have an option to include maintenance, servicing and road fund license. An initial advance payment is required the minimum is normally 3 month's rental. The monthly rental is subject to VAT although 50% of the finance element of the rental and 100% of the maintenance may be recovered. Contract Hire is tax efficient as the monthly rental can be offset against profits providing an improved cash flow and tax position. However these tax advantages may be available to corporate users only. The vehicle can be considered as 'off balance sheet funding' and not shown on your balance sheet. Not good for private individuals as they can not reclaim VAT. Contract Hire can be more expensive than other methods of funding, As mentioned above if the finance company are guaranteeing the residual value, then it is always set lower. |
| OUTRIGHT PURCHASE |
This method is still commonly used by many companies. The downside of this method are the fluctuations in the used vehicle market, however savings can still be made with a well managed disposal scheme. The risk in used vehicle prices effects all finance schemes except contract hire. The main downside to outright purchase is that the customer uses their working capital, which could be better invested in their business. Measures should be put in place to control mileage and 'wear and tear' on the Company vehicles, as these can seriously affect the resale value. Exactly as if the customer purchased through HP. The depreciation of a vehicle can be offset by capital allowances. These aim to give tax relief for the depreciation of the vehicle spread over a number of years. |