In the course of a day I am often asked to explain different types of funding methods – both for private and business users. Here’s some of the most common with a brief description. If you have any further queries about finance options drop me a line or if you’re about to buy a car on a certain scheme or would like a quote please click here.
Business Contracts
Contract Hire
Not to be confused with daily rental. This product is a popular way of financing the depreciation on your company vehicles while not utilising the capital or borrowing capability of your business.
The technical term is ‘off balance sheet funding’. It always includes Road Fund Licence for the term and can include full maintenance and replacement vehicles if required, thereby ensuring fixed costs for the whole life of the vehicle.
At the end of the contract, the vehicle is simply returned to the finance company and alleviates any disposal risk to you or your company. You simply choose your next vehicle and pay a new deposit. Contracts can range to 60 months with mileage allowances up to 50,000 miles per annum. VAT is reclaimable on rentals at varying rates dependant upon usage.
Finance Lease
This is an ‘on balance sheet funding’ method, which gives you many benefits:
Tax efficient method
VAT is spread over term of agreementNo mileage restrictionsReduced monthly payments by utilising a final balloon paymentThe opportunity to retain the majority of the sale proceeds
Other benefits such as Maintenance, AA/RAC can be included if required.
Contract Purchase
This method of funding is ideal for companies who cannot fully reclaim VAT. The big difference between Contract Purchase and Contract Hire is that you have the opportunity to purchase the vehicle at the end of the contract. If you do not wish to buy the vehicle you can simply return it to the finance company.
Other benefits such as Maintenance, AA/RAC can be included if required.
Personal Contracts
Personal Contract Purchase Plan
PCP is a method of purchasing a vehicle using a low deposit and by making no repayment to the Guaranteed Future Value (GFV) it enables a low monthly repayment to be achieved.
In other words, all you pay is the depreciation and with a guaranteed future value placed on the vehicle at the outset, there is no disposal risk. It is particularly useful when employees take a ‘cash for cars’ option from employers. At the end of the term you can take one of three options: -
1. Give back the vehicle.2. Pay off or re-finance the outstanding balance (GFV) to keep the vehicle3. Part exchange the vehicle using equity as a deposit
By far the most common option is No 3 (part exchange the vehicle). In most cases the GFV is lower than the market value of the vehicle thereby allowing a deposit for the next vehicle. It is, in effect, contract hire for the private individual and should you require it, full maintenance and road fund licence can be included
Personal Contract Hire
This scheme works in the same way as Contract Hire but is aimed at Ex-Company car drivers who are in receipt of a car allowance from their employer.
Other benefits such as Maintenance, AA/RAC can be included if required.
Some great current PCP deals are listed here
Finance subject to status and terms arranged by licenced credit broker CCL 573607. Written details on request.
for the gap between posts. Any longer and cryogenics may be required.. So, what’s been going on (apart from getting a new Sony Ericsson K800i to talk to my computer)
