With a myriad of finance options available to you it is often difficult to know which finance package is for you. To help you just need to answer a couple of questions and we'll make sure you are looking at the right finance option for you.
Are you paying for you vehicle through a business or employer? If, yes then you need to look at Contract Hire or Contract Purchase.
If buying the vehicle yourself do you want to own the vehicle at the end of the finance agreement? If yes, then you need to look at Hire Purchase.
If buying the vehicle yourself do you want to have lower monthly costs with an optional final payment to purchase the vehicle? If yes, then why not look at PCP, Lease Purchase of Finance Purchase.
Contract Hire is a perfect product for companies and private individuals who want to take the hassle and financial risk out of running their own car(s) or van(s).
You simply hire a vehicle for a pre-determined period, usually between 24 and 48 months, at a fixed monthly rental based on an agreed contract mileage. At the end you can just hand the car back and have a replacement delivered (subject to a new contract). No worry about what the car is worth, no hassle of trying to sell the vehicle and the time consuming dealing with prospective purchasers.
A Contract Hire agreement is typically between 24 - 48 months however CPLeasing can offer contract hire agreements from as little as 6 months to a maximum of 60 months on selected vehicles.
If you wish, for an agreed monthly payment, again based on the agreed pre determined period and contract mileage, you can take out an optional maintenance agreement that covers all the costs you are likely to incur for routine servicing, tyre replacements and mechanical failures on the vehicle meaning you have no unexpected garage bills to pay out for. It is worth noting that a maintenance contract does not cover damage to a vehicle that would normally be covered by an insurance policy e.g. damaged windscreens and accident/vandal damage.
The finance company retains ownership of the vehicle and any financial risks associated with it but you are responsible for insuring the car or van and at the end of the contract the vehicle needs to be in a condition commensurate with the age and mileage. All the finance companies offer a fair wear and tear policy meaning the car is not expected to be in retail showroom condition, but any significant dents and scratches should be put right before the end of the contract or you may be charged.
Excess Mileage
With Contract Hire you agree a monthly payment based on the contracted mileage and term of the contract. If you exceed the agreed contract mileage you will be liable for a pre-determined, “pence per mile”, excess mileage charge. This is not a penalty but is simply a charge to recover the extra depreciation that the additional mileage will cause.
All payments on a Contract Hire agreement attract VAT whether you are a business or an individual and usually you are expected to make an advance payment equivalent to 3 monthly rentals.
In addition to the obvious benefits to all users of this type of fixed cost no-hassle agreement, there are other features which may appeal to you if you are a business.
The key benefits of Contract Hire to business users are:
Off balance sheet funding - With a Contract Hire agreement the vehicle does not appear on your company’s balance sheet as it is not owned by you. The vehicle is owned by the finance company therefore it is removing the capital asset from your balance sheet and can improve your company’s borrowing ratio.
Fixed monthly cost - If you take out a Contract Hire agreement, your company agrees to pay a fixed monthly payment for the duration of the contract. The advantage of a fixed cost means your company is able to budget more effectively as there are no hidden costs. This can further be enhanced by taking out a maintenance contract as all your servicing costs will be included in the monthly rental.
VAT Benefits
If you are a VAT registered business you can then claim back 100% of the VAT on the servicing element of the rental cost and 50% of the VAT on the finance rental. Only if you are using the car for 100% business use e.g. you are a car rental company, can all the VAT be reclaimed on the finance rental. With a van however, typically 100% of the VAT is reclaimed on all elements as this is usually accepted as 100% for business.
Reducing your Financial Risks
As the vehicle does not belong to your company there are no financial risks associated with how much the car is depreciating and what it will be worth when you come to sell it You have peace of mind that you are in a fixed cost contract that you can budget for.
Reducing administrative burden
Contract Hire means that an administrator will only be needed to get a quote and ensure the relevant paperwork is sorted at the beginning of the contract. If maintenance is included in the contract the driver can simply call a number to arrange any maintenance themselves so there are no garage bills to administer and pay.
Am I a business or private user?
A business user may be described as any trading concern whether a limited company, partnership or sole trader who can offset the acquisition and running costs of a vehicle (or a proportion thereof) through the business accounts.
This is exactly the same as Contract Hire, it’s just branded to illustrate it is available for private individuals. If you are not a business entity then you can obviously not reclaim any of the VAT on the monthly payments.
It is also an ideal method for financing the more expensive vehicle on the fleet i.e. those over £25,000. It offers the same operational benefits of Contract Hire with the main difference being that the vehicle is on the balance sheet.
The major difference between Contract Hire and Contract Purchase is the fact you have an option to buy the vehicle at the end of the contract. When you take out the contract there will be a final "balloon payment" option which will be agreed at the start of the contract. At the end of the contract you have a choice to pay this figure or simply hand the vehicle back to the finance company.
If your company decides to buy the vehicle at the end of the contract your company is then responsible for the vehicle from maintenance to disposing of the vehicle when it is no longer needed. Where a vehicle is worth in excess of £25,000 a business may consider this to be a viable option.
The key benefits of Contract Purchase to the business user are:
Low Initial Deposit
Fixed monthly payment
Writing down allowance
Interest charges can be offset against tax
No risk on residual value
Optional final payment
No restriction on make or model
Alternative credit line
A Contract Purchase agreement is typically 18 - 60 months.
This is a hassle free way of financing your ideal car as it is a fixed monthly payment over a set contract period where you have agreed the vehicle will cover a set amount of miles per year. The main difference between Personal Contract Hire and Personal Contract Purchase is that at the end of the contract there is an option to buy the vehicle. This price is known as a “balloon payment” which is predetermined at the start of your contract. You can still decide to return the vehicle at no additional cost but you have flexibility within the contract to purchase the vehicle at the end of the contract if you so wish.
The key benefits of Personal Contract Purchase to the private individual are:
Low initial deposit
Fixed monthly payment
No risk on residual value
Optional final payment
A Personal Contract Purchase agreement is typically 24- 60 months.
Hire Purchase is similar to a car loan as you would pay for the whole amount of the vehicle over a fixed period of time. For example, if the car costs £10,000 you would simply agree a period of time over which to pay the £10,000 back, interest is added at the outset and then the total amount is divided equally over the repayment period. When you have finished making the payments the vehicle is owned outright by you.
A deposit is usually required which would reduce the amount you borrow.
The key features of Hire Purchase are:
Eventual ownership of vehicle
Fixed interest rates from the outset
Flexible deposit amounts
The car can be written down in your books-for businesses
All interest paid can be off-set against tax-for businesses
Lease Purchase is identical to Hire Purchase with the exception that instead of paying back the whole amount borrowed over a fixed period, you would defer some of the capital in the form of a balloon payment due at the end of the agreement.
The logic behind this is that as the vehicle will be worth something at the end of the agreement there is no need to pay all the capital as you can sell the car or van to cover the balloon payment.
A Lease Purchase agreement is determined by the cost of the vehicle, the contract length and the estimated future value of the vehicle which is based on the proposed annual mileage. In paying the “balloon figure” at the end of the contract you complete the agreement and the car is yours to keep. If you trade the car in for another, then any allowance over and above the balloon payment is yours and can be put towards your deposit on your next car. Likewise, if the allowance is less than the balloon, then you are responsible for the shortfall.
The key features of Lease Purchase are:
Eventual ownership of the vehicle
Flexible initial deposit
The car can be written down in your books-for businesses
All interest paid can be off-set against tax-for businesses
The monthly rental in a Finance Lease is determined by the cost of the vehicle, the period and the estimated future value of the vehicle, which is based on the proposed annual mileage. A payment equivalent to the estimated future value is payable at the end of the contract. At the end of the contract period, the vehicle is sold and the proceeds returned to the leasee.
The key features of Finance Lease are:
No ownership of the vehicle
Flexible initial deposit
Up to 100% of monthly payments offset against profits-for businesses
You may decide that leasing is not for you as you prefer to own your vehicle outright. If that’s the case please contact us as we are able to sell vehicles at a very competitive price outright. Whether it is a new, used or imported vehicle we can offer vehicles for outright purchase.
Tel: 01234 218120
