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Car Finance and Leasing Guide

Our jargon free car finance, contract hire and leasing guide ensures you fully understand the various types of automotive finance and lease contracts available.

Business Contract Hire

Also known as an operating lease, business contract hire offers a fixed payment over the period of the lease contract with no risk to the customer on disposal. The vehicle is kept off an organisations balance sheet, whilst up to 100% of the rental can be offset against taxable profits. VAT is charged on the finance rentals with 100% of the VAT being reclaimable on the maintenance part whilst 50% can be reclaimed on the finance part if any private use of the vehicle is applicable. The road fund licence (RFL) is included for the entire contract period.

Summary: Business Contract Hire is tax efficient and offers a clean method of funding vehicles with no disposal risks. An optional fixed price vehicle maintenance plan can be added to save money and control costs.

Personal Contract Hire

Personal contract hire is the same as business contract hire but aimed at private users and is commonly referred to as a personal car lease. The car is purchased by the finance company who estimates a value of the car at end of the term and your monthly payment then consists of the depreciation and interest. The benefits are no residual value risk and fixed payments, but the car has to be returned in a reasonable condition and not at a greater mileage than stated at contract inception or the finance company will levy an excess mileage charge for this. The road fund licence (RFL) is included for the entire contract period.

Summary: Personal Contract Hire provides fixed monthly payments with no disposal risks or hassle. An optional fixed price car maintenance plan can be added for total peace of mind.

Finance Lease

This form of leasing offers a fixed payment over a flexible period of the lease with the responsibility of the vehicle disposal lying with the client. Any reward or risk upon disposal is entirely with the client. Finance lease can be offered with a final residual payment or without on a fully amortised basis with all rentals attracting VAT. The vehicle is capitalised onto the client's balance sheet and is countered on the liability side by the capital element of the outstanding rentals.

Summary: Finance Lease offers a tax efficient funding plan where organisations want to take the responsibility themselves for the resale of the vehicles.

Business Contract Purchase

The client agrees to purchase the vehicle via a series of fixed monthly payments comprising of a proportion of capital and interest. A final guaranteed balloon residual payment is inclusive which is pre stated on the contract at the point of sale which is equal to or less than the predicted future value. For tax purposes ownership of the vehicle is transferred to the client on the date the contract is signed. At the end of the agreement if the vehicle is worth less than the pre agreed balloon residual value, the client can hand the vehicle back to the finance company without penalty although excess mileage and condition penalties may be applicable.

The vehicle is classed as an asset of the organisation and the client gains access to the writing down allowances, a balancing charge or allowance is calculated upon disposal effecting a full, if delayed depreciation for tax purpose. No VAT is applicable to this finance plan.

Summary: A finance product for those who wish the option to own their vehicles but avoid the risk of financial loss upon disposal.

Personal Contract Purchase (PCP)

Personal Contract Purchase or PCP has terms normally from 24 months up to 60 months, again with fixed repayments and a guaranteed future value (GFV) which you have the option to pay to own the car at the end of the agreement although you can also choose to hand the car back to the finance company with nothing further to pay. The car needs to stay within the mileage amount stated at contract inception and also returned in a reasonable condition or the finance company does have the right to levy a charge for the loss in value.

Summary: A finance product for those who wish the option to own their cars but avoid the risk of financial loss upon disposal.

Hire and Lease Purchase

A tried and tested method of achieving vehicle ownership is hire or lease purchase. Usually hire purchase (HP) is subject to an initial deposit followed by monthly payments until the full amount of the loan including interest is repaid, the final payment usually has an option fee added and when this is paid the title of the vehicle passes. For the record, conditional sale is a similar product although title passes automatically upon the agreements inception.

Lease purchase operates in a similar way and has a residual or balloon payment at the end of the agreement. The benefit in looking at lease purchase over hire purchase is that the same value of vehicle can be purchased over the same period at a lower monthly cost as a proportion of the outstanding amount is incorporated into the fixed residual or balloon payment. Both options offer on balance sheet funding with access to writing down allowances for tax and accounting purposes, the purchaser is treated as the owner of the vehicle when the agreement is signed and not when the purchase option is exercised. All interest payments are deductible from profits as a trading expense. No VAT is applicable to these finance plans.

Summary: Ideal funding method for organisations who require the vehicle to be shown as an asset and wish to take the responsibility for the resale and disposal.

Balanced Payment Plan

This finance option allows a double benefit where the client requires a fixed payment linked to a variable interest rate facility. The client can benefit from future interest rate reductions and lower interest penalties upon early settlement of the agreement. The finance house base rate (FHBR) will fluctuate during the agreement and in the event that the FHBR is higher than that reflected in the periodic payments, then your payments will continue until the capital and interest balance is repaid. Alternatively should the FHBR be lower than originally assumed, then fewer payments will be required to complete the agreement. Capital lump sums can also be paid to create a shorter repayment period. In some cases the original monthly rental can be reduced whilst leaving the payment period as per the original agreement.

Summary: Ideal for clients who traditionally settle their agreements early and who take the responsibility of the disposal of their vehicles.

Sale and Leaseback

The ideal solution for companies who want to release the capital tied up in existing vehicle fleets straight into company reserves and remove the vehicles from the balance sheet. Subject to book value and specific requirements, the leasing or finance company can purchase your existing fleet and lease or contract hire them back to you for a pre agreed rental and period.

Additional benefits of sale and leaseback are that all your vehicles are purchased via a single paper transaction allowing a cash injection into the business which can improve gearing ratios. The organisation can take a new for old agreement where they benefit from the finance or lease companies disposal routes to release the cash value of the vehicles and replace them with new vehicles on contract hire.

Summary: Ideal for organisations who require a cash injection for use in other projects, in addition this product removes any future disposal responsibilities or risks.

Short Term Leasing

Has your car let you down, or do you need one in a hurry until your new car arrives? Short term car leasing or flexilease is the most convenient and flexible way to bridge the gap for any car rental over 28 days.

With low deposits, flexible terms, no long term commitments and low monthly payments, our short term, flexible car leasing service is ideal for employees on temporary contracts, new recruits, start up businesses, as part of a larger fleet or for those who just fancy a new vehicle every few months!

Summary: Ideal for individuals and companies that do not require a long term vehicle commitment.

Non Status Leasing

Since when the banks started lending money to consumers there have always been people who did not meet the normal underwriting criteria for the main stream banks. These people as far as vehicles go, fell into the non status or sub prime leasing bracket. However due to the credit crunch, it started to have an effect on lending criteria and since mid 2008 more and more people were finding themselves classed as a high risk by the banks and leasing companies.

The main stream banks realised that they could no longer lend the amounts that they had been doing as they were taking excessive risks. So underwriting criteria was completely changed and all of a sudden millions of people and businesses found themselves in the non status bracket through no fault of their own.

Summary: Ideal for individuals and companies with a poor credit history, adverse credit or are new start businesses.

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