Below are some quick guide to various policies, and their key benefits for contract hire and other methods of car finance in the uk. If you require further information, please feel free to contact our staff, who will be happy to help.
With contract car hire, you hire the vehicle for an agreed period of time (usually between 24 & 48 months) and pay a fixed rental based on the mileage you will do over the contract period. All payments are subject to VAT of which 50% is recoverable. Up to 100% of the monthly rental can be offset against profits.
- contract hire means low initial rental.
- contract hire means low monthly payments, particularly on prestige cars due to strong residual values.
- contract hire means fixed costs.
- contract hire means maintenance can be included in monthly contract hire payments.
Since August 1995, leasing companies have been able to reclaim the VAT on the purchase of cars, this means that you pay less per month because:
- the interest charges are applied to the net of VAT cost price i.e. a £20,000 car would be £17,021 without the VAT, giving substantial savings on interest charges.
- the depreciation on the car is based on the net of VAT cost price, immediately saving you a significant amount of depreciation.
Finance lease involves leasing the vehicle for an agreed period of time (usually between 24 & 48 months) and paying a fixed payment until the end of the contract. Usually a lump sum final payment is made which is equivalent to or lower than the expected sales proceeds of vehicle (balloon payment). All payments are subject to VAT of which 50% can be reclaimed. Maintenance cannot be included with finance lease.
- finance lease means low initial rental.
- finance lease no mileage restrictions, although you will end up paying for the depreciation for the miles travelled.
- finance lease offers the VAT advantages of contract hire.
Hire purchase involves purchasing the vehicle over an agreed period of time. At the end of the period the vehicle is yours with nothing further to pay. There is no VAT involved with hire purchase.
- Hire purchase allows you to own the vehicle
- Hire purchase involves no mileage restrictions
With lease purchase, you purchase the vehicle over a period of time, deferring an amount of the purchase cost by way of a balloon payment usually equal to or lower than the expected sales proceeds at the end of the contract. This allows for lower monthly payments than with straight hire purchase. There is no VAT involved with a lease purchase agreement on a car.
- Lease purchase means low deposit
- Lease purchase means no mileage restrictions, although you will end up paying for the depreciation for the miles traveled
- Lease purchase means allows you to own the vehicle
Personal Contract Purchase or PCP
With personal contract purchase, you lease or purchase the vehicle for an agreed period of time (usually between 24 & 48 months) and you pay a fixed payment based on the mileage you will do over the contract period. At the end of the contract period you can pay an agreed final payment & take ownership of the car or simply send the car back. No VAT involved on finance payments with personal contract purchase, and VAT is applied to maintenance if taken.
- personal contract purchase allows for a private individual to obtain full fleet discount on the purchase of a car
- personal contract purchase allows for lower deposit and lower monthly payments than hire purchase
- personal contract purchase offers the best of both worlds
- personal contract purchase means you don’t have to decide whether you want to own the vehicle until the end of the contract
- personal contract purchase allows a private individual to have a fully maintained contract