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Finance and Leasing Info:
Introduction
Lease or buy? There are two main routes to vehicle acquisition: You either own the vehicle outright or hire the use of it over a fixed period through a leasing arrangement. More than half of all new company cars registered each year are funded through contract hire and that figure is growing.
Whether the car is for business or personal use, one of the benefits of leasing cars is the ability to make a lower deposit and monthly payments.
Of course paying cash can still be an effective option, however it ties up cash that could be better invested and you own an asset that is likely to depreciate over time.
In either case please consider the options below and do not hesitate to contact us for unbiased advice.
Contract Hire
- Contract hire is an ideal product for companies who don't want the financial risk of running their own cars, and who are looking to reduce the administrative burden of buying, servicing and disposing of their vehicles.
- VAT benefits: The Leasing company can claim back the VAT on the purchase price of the new car, which means that the benefits are passed on to the Customer. Once the vehicle is on the road, you can then claim back 100% of the VAT on the servicing element of the rental cost and 50% of the finance rental cost.
- Off balance sheet funding, under contract hire your vehicles do not appear on your company's balance sheet. The removal of capital assets from your balance sheet can enhance a company's gearing (borrowing) ratio.
- One regular payment covers all (including maintenance if required) for an agreed period and mileage.
- Road fund licence is included and all you do is insure it and put in the fuel. At the end of the term, you just hand back the vehicle or extend the hire, the choice is yours.
Contract Purchase
- This method of funding is ideal for companies who cannot fully reclaim VAT and is particularly suitable for financing the more expensive cars on the fleet.
- For businesses with high value cars that would like the option to purchase the vehicles but do not want any depreciation risks.
- The business acquires the vehicle by paying fixed monthly installments with the asset being shown on the company balance sheet and can either retain ownership at the end of the contract or hand the vehicle back.
- The big difference between Contract Purchase and Contract Hire is that you have the opportunity to buy the vehicle at the end of the contract period.
- You have the option to buy the vehicle when the contract is up by making a final 'balloon' payment, agreed at the start of the term. Alternatively you can return the vehicle, sharing in any sales profits but with nothing further to pay should we sell the vehicle for less than the balloon payment.
Personal Contract Hire
- Popular with company car drivers who are given a car or mileage allowance instead of company vehicle.
- Personal Contract Hire (PCH) gives the user a fixed equal monthly rental for a fixed contract term and mileage. At the end of the contract the vehicle is simply handed back.
- It allows the individual to make his/her own choice and arrangements.
- This will avoid benefit-in-kind taxation. The finance company assumes the risk of the residual value of the vehicle.
Personal Contract Purchase
- Personal Contract Purchase (PCP) is by far the most popular method of funding your vehicle when taking a Cash for Car option.
- It is essentially a purchase agreement where the monthly payment is kept low by the implementation of a Guaranteed Future Value (GFV).
- The GFV is stated at the outset of the contract and is determined by your annual mileage. At the end of the contract term, you have three options:
- Hand back the vehicle to the finance company. (An excess mileage charge may be incurred if you exceed the stated mileage)
- Purchase the vehicle at the GFV value. (Regardless of market value. We can arrange a re-financing package if required).
- Part-exchange the vehicle. (This is by far the most popular option as it allows you the possibility of taking equity from the difference between the part-exchange and GFV figure on the vehicle. This amount can be used as a deposit on your next vehicle).
Hire Purchase/Lease Purchase
- For non-VAT registered business or individual that want eventual ownership of the vehicle.
- A funding agreement where ownership is acquired when all the payments, including the option to purchase have been made.
- Part of the capital cost of the vehicle payment may be deferred into a balloon payment at the end of the agreement, the anticipated value of the vehicle.
- If ownership is not important and the business is VAT registered, the best value for money is Contract Hire.
Sale and Leaseback
- If you have already purchased your fleet, we will buy your vehicles and contract hire them back to you.
- Free up substantial capital for re-investment.
- One Fixed single monthly payments.
- Eliminate depreciation and re-sale risks.
- Boost your company's liquidity.
- Move your fleet off balance sheet and gain VAT benefits.
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