See the differences between vehicle funding options available to businesses, along with the advantages and points to consider for each method.
Business Contract Hire
With Business Contract Hire the company will be entering into a contract with a Finance Company. You will be given the full use of the vehicle you choose for the contracted period of time.
During this time the business never owns the vehicle, it remains the property of the Finance Company. For use of the vehicle, you will need to pay the finance company a monthly rental.
The finance company will decide how much this monthly rental will need to be based on the cost of the chosen vehicle, the length of the contract and the residual value of the vehicle at the end of the contract. The residual value depends upon expected depreciation and includes how many miles the vehicle will have travelled, so there will be a mileage limit set out in your leasing contract.
Business Contract Hire
Advantages
- The opportunity to drive vehicles that may not be affordable if buying the vehicle outright
- Contract length can be between 18 and 60 months
- A fixed monthly price allowing for easier budgeting
- Maintenance packages available so there are no unexpected servicing costs
- Vehicle road tax will be included in your monthly rental
- No worries over depreciation or re-sale of the vehicle
- There is usually only a small initial outlay at the beginning of your lease
- Flexible terms – you can tailor your lease to your business needs, choosing the length of contract and the mileage allowance that will suit you
- For companies who are VAT registered; If the vehicle will be used solely for business purposes your business can claim back 100% of VAT paid. If your vehicle will be used for a mixture of personal and business use your business can still claim back 50% of the VAT costs
- Your monthly rental can be up to 100% reclaimable against corporation tax (conditions apply)
- You do not need to be VAT registered to take advantage of this product
Points to consider
- You never own the vehicle
- Exceeding your mileage limit will incur extra cost
- You must use comprehensive insurance
- There is no option to buy your vehicle at the end of your lease
- Your vehicle must be in a good condition at the end of your lease. Any wear and tear outside of the fair wear and tear guide will lead to extra cost at the end of your lease.
- It is likely to be expensive if you need to terminate your contract early.
Finance Lease
With Finance Leasing the finance company will own the chosen vehicle and the business will pay a monthly rental to the finance company to use the vehicle for a contracted period of time. The monthly rental is decided upon by considering the initial value of the vehicle, the contracted lease period and the residual value of the vehicle.
At the end of the initial lease period, there may be a balloon payment to be made. 'Balloon payment' is the name given to the final sum of money owed to the finance company. The vehicle must then be sold to an independent third party. If a profit is made the business leasing the vehicle will be given a share. If the business wants to continue to use the vehicle they can enter into a secondary rental period. If this is the case for your business our Account Managers can provide you with more information.
Finance Lease
Advantages
- The opportunity to drive vehicles that may not be affordable if buying the vehicle outright
- A fixed monthly price allowing for easier budgeting
- Contract length can be between 24 and 60 months
- Your monthly rental can be up to 100% tax deductible
- Asset can be shown on businesses balance sheet
- Option to pay entire cost of vehicle through monthly rentals or make lower monthly rentals and a larger balloon payment at the end of the lease contract
- If the vehicle is used solely for business purposes 100% of VAT costs can be claimed back and if the vehicle is used for a mixture of business and personal use your business can still claim back 50% of the VAT costs
- You have the ability to settle the agreement earlier than the contracted term
- No mileage restrictions or charges for damage to the vehicle at the end of the vehicle. This is simply reflected in the vehicle's value
- You do not need to be VAT registered to take advantage of this product
- If a profit is made when the vehicle is sold at the end of the contract you may receive a payment
Points to consider
- Your business will never own the vehicle and it must be sold to an indpendent third party at the end of the lease contract
- Risk of variations in the used vehicle market which could mean that your vehicle is worth less than the balloon rental
- At this point few funders have the ability to add maintenance. Therefore, it is important to make sure that the vehicle is serviced in line with the manufacturer recommendations
- A potential risk of negative equity if the agreement is settled too early or if the vehicle's value is less than any settlement figure
Business Contract Purchase
With Business Contract Purchase the business will have the option to buy the vehicle at the end of your contract. The business will enter into a contract with a finance company relating their chosen vehicle. At the beginning of the contract, the Minimum Guaranteed Future Value of the vehicle will be agreed upon. This Value reflects how much the vehicle may be worth at the end of the contract and is set as a final balloon payment. It will depend upon various factors such as the length of the contract and the mileage the vehicle has been driven.
At the end of the contract you can choose to pay the value of the balloon payment and own the vehicle, or you can choose not to pay it and return the vehicle subject to condition and mileage.
Business Contract Purchase
Advantages
- The opportunity to drive vehicles that may not be affordable if buying the vehicle outright
- Contract length can be between 24 and 60 months
- A fixed monthly price allowing for easier budgeting
- Maintenance options available so there are no unexpected servicing costs
- There is usually only a small initial outlay at the beginning of your lease
- Flexible terms – you can tailor the lease, choosing the length of contract and the mileage allowance that will suit your business
- The resale value of the vehicle is agreed at the beginning of the contract so there is no risk of negative equity
- You can own your vehicle at the end of the contract
- For balance sheet purposes the vehicle can be a company asset
Points to consider
- Exceeding your mileage limit will incur extra cost if vehicle is returned
- Your vehicle must be in a good condition at the end of your lease. Any wear and tear outside of the fair wear and tear guide will lead to extra cost at the end of your lease, if your vehicle is returned
- It could be expensive if you need to terminate your contract early
- Usually, road fund Licence must be paid for separately – it is not included in your monthly payments as it is for other types of lease
- You do not own your vehicle until after the balloon payment has been made at the end of your contract
Business Hire Purchase/Lease Purchase
With a Business Hire Purchase agreement, you will be entering into a contract with a Finance Company. Here the Finance company will be the people who purchase the vehicle, then they will allow you to use the vehicle while your business pays monthly instalments over a contracted length of time to cover the total value of the vehicle. Usually, an initial deposit of higher value than the agreed monthly payment will be required. After this contracted time, when all the payments under the agreement have been made, the vehicle will then be owned by you.
Business Hire Purchase
Advantages
- The opportunity to drive vehicles that may not be affordable if buying the vehicle outright
- Contract length can be between 24 and 60 months
- A fixed monthly price allowing for easier budgeting
- Monthly payments made will not be subject to VAT
- Your business will own the vehicle at the end of the contract
- Flexible contract lengths to suit your financial position
- For balance sheet purposes the vehicle can be a company asset
- No charges at the end of the lease for excess mileage or vehicle damage
Points to consider
- You do not own your car until the final payment has been made
- If you do not keep up with repayments the finance company can repossess your vehicle
- The finance on your vehicle must be settled before you can resell your vehicle
- There is no option to hand back your vehicle, the balloon payment must be made at the end of the contract
If you need any further information regarding vehicle funding options for businesses our Account Managers are happy to help.
