A to Z of Vehicle Finance
There are various different finance packages available and they all have different characteristics in terms of how they will affect your financial circumstances. This section gives you an overview of the different schemes and the way they operate.
Contract Hire
Our most popular form of finance with a low initial outlay (3 months) and fixed monthly repayments, Contract Hire offers hassle free motoring. A basic contract provides you the vehicle and road fund licence and allows rescue and recovery services and maintenance costs to be built into the contract. Contract Hire is very efficient as it is treated as “off balance sheet” which allows rentals to be offset against taxable profits. If your business is VAT registered you may also reclaim 50% of the finance element of the rental and 100% of the maintenance element. As the vehicle is owned by the finance Company there is no risk to you at the end of the term when the vehicle is disposed of. We recommend full maintenance contracts to give you complete peace of mind and locked in costs for the duration of the contract.
Hire Purchase
As simple and traditional form of finance or loan. Typically a deposit (typically 15%) is paid and the balance is then re-paid over the term of the agreement (12 – 60 months). When all the payments have been made you will own the vehicle. There is no Vat added to the repayments and the interest charged is tax deductable. The vehicle is treated as an on balance sheet item (asset) and therefore can be written down against taxable profits. Our attractive rates make this an effective method of borrowing where ownership is a priority.
Lease Purchase
Lease purchase is a finance agreement that is based on a hire purchase agreement but with the advantage of a final payment (balloon). It has the same tax and financial benefits as hire purchase but offers greater flexibility in how the loan is structured. By incorporating a final payment into the loan, you have more affordable monthly repayments. You can then pay the balloon at the end of the term and therefore own the vehicle or sell the vehicle and use the proceeds to settle the final payment. Any remaining equity is basically profit !
Finance Lease
This can be a cost effective option if you are looking for minimum outlay, tax benefits, but do not want eventual ownership of the vehicle.
Rentals can be paid monthly, quarterly or annually throughout the agreement which is based on the estimated useful life (normally 2 – 5 years). You may also reduce the monthly payments by making a “balloon” payment at the end of the agreement.
Financing costs are calculated on the VAT exclusive amount significantly reducing your monthly payments. The vehicle is classed on balance sheet during the agreement, allowing you to offset the rentals against taxable profit. Vat can be reclaimed as per contract hire above. On disposal of the vehicle the bulk of the sale proceeds will be refunded to you as a rebate of rentals. This rebate will attract VAT.
|
Hire Purchase |
|
Lease Purchase |
|
Finance Lease |
|
Contract hire |
Low initial Outlay |
10-15% |
|
10-15% |
|
10-15% |
|
3 months rental |
Fixed monthly costs |
x |
|
x |
|
x |
|
x |
Flexible payments |
|
|
x |
|
x |
|
|
Balloon payment |
|
|
x |
|
x |
|
|
No resale risk |
|
|
|
|
|
|
x |
Ownership |
x |
|
x |
|
|
|
|
Vat on rentals |
|
|
|
|
x |
|
x |
Interest allowable against tax/p> |
x |
|
x |
|
x |
|
|
Off balance sheet |
|
|
|
|
|
|
x |
refund of sales proceeds |
|
|
|
|
x |
|
|
Rescue Recovery Services |
|
|
|
|
|
|
x |
Full maintenance Cover |
|
|
|
|
|
|
x |
Reduced administration |
|
|
|
|
|
|
x |
Personal Contract hire / Purchase
Personal contract hire works in the same way as a business contract but the VAT included within the rental and cannot be reclaimed. If you are receiving an allowance from your employer or simply want a hassle free motoring package then these schemes will suit you. The alternatives to Personal Contract Hire are Hire purchase, Lease purchase or Contract purchase. By building in a final payment (Lease purchase and Contract purchase) you can reduce the monthly repayment and therefore afford a better car. At the end of the contract simply sell the vehicle or re-finance the final payment. As with business leasing the road fund licence, rescue and recovery services and routine maintenance can all be built into these schemes.
www.chvf.co.uk - t: 020 8995 5935 - f: 020 8181 4560 - e:info@chvf.co.uk