Funding Options
There are various vehicle funding options:
- Personal Contract Purchase
- Contract Hire
- Finance Lease
- Hire Purchase and Lease Purchase
- Personal Contract Hire
Personal Contract Purchase
This is a funding agreement similar to Lease Purchase, where ownership passes to you once all payments and fees have been paid.
Agreements are structured using an optional final payment (Guaranteed Future Value) at the end of the contract, which results in lower affordable monthly payments throughout the term. The Guaranteed Future Value is the estimated value of the vehicle at the end of the agreement and is only paid should you wish to have outright ownership of the vehicle. The vehicle may be returned to the finance company at no cost, assuming all contract terms have been adhered to.
The Benefits
- Low initial deposit
- Fixed monthly costs
- No depreciation risk
- No disposal problems
- Option to own the vehicle
- Freedom for drivers to choose a vehicle to suit budget and requirements
- Optional maintenance package.
Contract Hire
Contract Hire is a very popular choice for VAT registered businesses who wish to take advantage of a low initial outlay and have the benefit of a fixed monthly rental with the option to include a full maintenance package. The funder calculates, and assumes the risk for the residual value of the vehicle.
The Benefits
- Low initial deposit
- Fixed monthly costs with the option of a full maintenance package
- The rentals can be offset against the taxable profit
- Off balance sheet funding
- No depreciation risk
- No disposal problems
- Requires minimal administration by the customer
- If the vehicle is used solely for business purposes then 100% of the VAT on the finance rental can be reclaimed. If there is both business and private usage, then 50% of the VAT on the finance element of the rental and 100% of the VAT on the maintenance element if included can be reclaimed.
Finance Lease
This is an ideal funding method for VAT registered companies that wish to handle the administration of their vehicles, and have the asset shown on their balance sheet. This is a VAT beneficial finance option where the hirer can chose to pay the entire cost over an agreed lease period, plus an interest charge or pay lower monthly rentals during the lease period with a final payment based upon an anticipated resale value of the vehicle.
The Benefits
- Low initial outlay
- Hirer only pays for depreciation and finance lease charges during the course of lease
- Finance lease charged on VAT exclusive price of new and qualifying cars.
- Use without ownership
- Benefit from sale proceeds
Hire Purchase and Lease Purchase
This is a finance agreement where the title of ownership passes to you once all payments and fees have been paid. You are responsible for the depreciation and therefore future value of the vehicle in addition to the maintenance costs and all risks of ownership.
A Lease Purchase agreement is similar to Hire Purchase but is normally constructed with a residual value or balloon payment at the end of the term. This results in lower monthly payments.
The Benefits
- Ultimate ownership of the vehicle
- The vehicle appears on a company balance sheet
- Writing down allowances can be claimed
- Possibility of equity
- Can be settled at any time
- There is no VAT on monthly payments
Personal Contract Hire
Personal Contract hire offers the user fixed monthly rentals for a fixed contract term. At the end of the contract term the vehicle is returned back to the finance company, no need to sell the vehicle privately or worry about its value. Personal Contract Hire (PCH) is popular with drivers that are opting out of their company car schemes in favour of a cash alternative.
The Benefits
- Low initial deposit
- Fixed monthly costs
- No final balloon payment
- No disposal problems
- Freedom for drivers to choose a vehicle to suit budget and requirements
- Optional maintenance package.