Van & Car Finance Options Explained

A vehicle is hired to you for a fixed period (typically 3 years). Monthly payments are calculated based on the difference between the initial value of the vehicle and its projected residual value, plus finance charges. This means only a proportion of the vehicle's value is repaid, which avoids a large initial expenditure (typically just 3 months rentals in advance). Enjoy all the operational benefits of ownership without the headaches of running costs and vehicle disposal. At the end of the agreed period you simply return the vehicle, freeing you from additional costs (excluding excess mileage or damage charges). Contract hire is the most common form of funding and accounts over two thirds of all vehicle leases.

Benefits of Contract Hire/Operating Lease:

• Vehicle use without a large capital outlay
• Improved cash flow with fixed monthly rentals
• Reclaimable VAT (depending on usage)
• Totally fixed and predictable costs
• Outsourced administration and management
• Off balance sheet funding
• Rentals are allowable against taxable profits
• Monthly rentals can be more economical than those found in a lease hire deal
• No worry or risk at the end of the agreement as you simply give the vehicle back

A vehicle is hired for a contract period in return for monthly rentals. The monthly rental 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, when the vehicle becomes the property of the lessee. The vehicle must be sold to a third party, with the user acting as an agent for the finance company.

Benefits of Lease Hire:

• Maintenance packages are often available
• Lease hire is a cheaper monthly alternative to Hire Purchase, the traditional method of financing
• Significant tax and VAT concessions may be available depending on the individual deal
• There are a large number of offers on the market offering different deposit and repayment terms
• Vehicles will show as assets on the company balance sheet

Hire Purchase is a method of acquiring assets without having to invest the full amount in buying them initially. Typically, a hire purchase agreement allows the hire purchaser sole use of an asset for a period after which they have the right to buy them, often for a small or nominal amount. Ownership only passes to the purchaser at the end of the hire period.

Benefits of Hire Purchase:

• The customer gains immediate use of the asset without having to pay or borrow a large amount for it
• Vehicles will appear as assets on the company balance sheet, entitling the company to claim capital allowances against depreciation

Features flexible deposit terms and attractive monthly payments based on the vehicle price less the optional final payment (OFP). At the end of the agreement period (typically 2 or 3 years) the customer can choose from 3 options:

1. Trade the vehicle for a new one
2. Pay the OFP and keep the vehicle
3. Return the vehicle with nothing further to pay

Benefits of Personal Contract Purchase (PCP):

• PCP is a very flexible scheme where the customer can choose what to do with the vehicle at the end of the agreement period
• Improved cashflow compared with outright purchase
• Agreements are flexible in accordance with customer’s financial circumstances
• PCP carries none of the risks associated with falling residual values

Personal Contract Hire is essentially the same as Contract Hire but is exclusive to private individuals. Offering the same benefits as Contract Hire, it provides fixed cost motoring and is an alternative option to those who may have opted out of a company car scheme.
Personal Contract Hire provides you with hassle free motoring without the residual value risks associated with traditional ownership. Maintenance packages may also be available, helping avoid any nasty surprises. VAT is built into the monthly payments, but is not reclaimable by private individuals. Personal Contract Hire benefits are:

• Allows you to hire new or used vehicles
• Includes a full-term Road Fund License
• Offers the option to include a full maintenance package, providing worry-free motoring