Finance Options :: Driving Options

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Contract Hire	Hire Purchase
Finance Lease	Lease Purchase
Personal Contract Hire and Leasing	Personal Contract Purchase
Sale and Lease back	Taxation Info

Contract Hire

Probably the most popular method of funding for businesses. Just as the name implies, this is a hiring agreement where the vehicle remains the property of the finance company. The vehicle is disposed of by the finance company at the end of the contract, removing any depreciation or disposal worries. The contract period is usually set for a period between 2 and 4 years.

You pay for a fixed monthly rental for contract hire which will includes:

	Cost of vehicle funding.
	Cost of vehicle depreciation.
	Road Fund License.

For an additional Rental you can include the following options to a contract hire package:-

	All Maintenance, Service, Repairs, Tyres and Batteries.*
	Relief Vehicle provision.
	Recovery service.
	Insurance protection

*Accidental damage, driver abuse and glass breakages are normally excluded.

Advantages

	Fixed cost motoring:- You only have to bear the direct costs for fuel and vehicle insurance, plus ‘excess mileage’ charges if the vehicle exceeds the term mileage figure.
	Reduced administration – no need for complex vehicle records.
	No worries or responsibility for vehicle disposal and fluctuations in the market place.
	Low initial outlay.
	Low monthly outlay.
	Finance charged on VAT exclusive price of new and qualifying cars.
	Releases capital normally tied up in ownership of vehicles
	Tax allowable – for cars up to £12000 the total rentals are fully allowable against taxable profits. The allowance reduces for more expensive vehicles.

Disadvantages

	No equity on the vehicle at the end of the contract hire.
	VAT on rentals only 50% of which is normally reclaimable.
	Vehicles do not appear on the balance sheet.

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Personal Contract Purchase

This is a funding agreement similar to hire purchase, where ownership passes to you once all payments and fees have been paid.

Agreements are structured using a residual value ‘end of agreement’ optional payment, which results in lower affordable monthly payments throughout the term. The residual value is the estimated value of the vehicle at the end of the agreement and is only paid should you wish to have outright ownership of the vehicle.

There are 3 options at the end of the term as follows;

1.	The vehicle may be returned to the finance company at no cost, assuming all contract terms have been adhered to.
2.	The residual payment can be paid for outright vehicle ownership.
3.	The vehicle may be part exchanged for another vehicle of any make, prior to the end of the agreement. Any equity can be used as deposit or possible cash back.

A PCP is normally set for a period between 24 & 42 months. Maximum annual mileage restrictions exist with certain lenders.

You pay a fixed monthly rental which includes:

Cost of vehicle funding.

Maintenance
For an optional maintenance rental* and subject to availability, you can include any or all or the following:

	Maintenance, Service, Repairs, Tyres and Batteries.
	Recovery Service.
	Insurance protection

Advantages

	Low initial Outlay.
	Low monthly cost.
	Minimal or zero risk for depreciation.
	No VAT on finance repayment.
	Option to own vehicle.
	Vehicle appears on balance sheet, if applicable.
	Fixed cost motoring.

Disadvantages

	No or reduced equity on vehicle.
	VAT on new or qualifying vehicles is not reclaimable.

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Finance Lease

This is a hiring agreement to business users where the vehicle remains the property of the finance company. The Hirer is responsible for the residual value(balloon) and for the road fund licence.

The Hirer can never own the vehicle and it must be disposed to a third party. On disposal the finance company will refund a percentage of the sale proceeds, after deducting the balloon payment.

The contract mileage is usually set for a maximum of 100,000 miles for petrol engines and 120,000 miles for diesel engines. The contract period is usually set for a period between 2 and 4 years.

Advantages

	Low initial outlay
	Low monthly outlay.
	Hirer only pays for depreciation and finance charges during the course of lease.
	Finance charged on VAT exclusive price of new and qualifying cars.

Disadvantages

	No or reduced equity in the vehicle at the end of the contract.
	VAT on rentals only 50% of which is normally reclaimable.
	Vehicles appear on balance sheet.
	Hirer takes risk of any loss on the sale of the vehicle.
	The hirer pays interest on the outstanding Balloon payment

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Hire Purchase and Lease Purchase

This is a funding agreement where the title of ownership passes to you once all payments and fees have been paid. You are responsible for the depreciation and therefore future value of the vehicle in addition to the maintenance costs and all risks of ownership.

A Lease Purchase agreement is similar to Hire Purchase but is normally constructed with a residual value or balloon payment at the end of the term. This results in lower monthly payments.

Advantages

	You can gain ownership of the vehicle.
	The vehicle appears on a company balance sheet.
	There is normally equity in the vehicle to pay a deposit on the next vehicle.
	Business users can claim a writing down allowance.
	There is no VAT on monthly payments.

Disadvantages

	Higher monthly cost.
	VAT is not reclaimable on cars.
	You bear the risk of the depreciation of vehicle

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Personal Contract Hire or Leasing

Acquiring a car through a Personal Lease plan is fast becoming a popular method of financing a vehicle for personal use. Whether you have a cash allowance from your company or you're looking for a fixed cost motoring plan with no risk on the residual value of the vehicle, a Personal Lease could be right for you.

Personal Contract Hire

This route might be ideal for you if you have opted out of your company car scheme or if you are looking for fixed-cost motoring on any type of new car.

So, if you’re a private individual looking for a new car with a comfortable monthly payment with the added benefits of no expensive surprises and no risk on the residual value, Personal Contract Hire could be right for you.

You pay a fixed monthly rental which includes:

	Cost of vehicle funding.
	Cost of vehicle depreciation.
	Road Fund License.

For an additional Rental you can include the following options: -

	All Maintenance, Service, Repairs, Tyres and Batteries. *
	Relief Vehicle provision.
	Recovery service.
	Insurance protection.

Advantages

	Fixed cost motoring:- You only have to bear the direct costs for fuel and vehicle insurance, plus Excess Mileage charges if the vehicle exceeds the Terminal Mileage figure.
	Reduced Administration.
	No responsibility for vehicle disposal.
	Low initial outlay.
	Low monthly outlay.
	Finance charged on VAT exclusive price of new and qualifying cars.
	Road Fund Licence included for the term of the contract.

Disadvantages

	No equity in the vehicle at the end of the contract.
	VAT on rentals only 50% of which is normally reclaimable.
	Vehicles do not appear on the balance sheet.

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Sale and Lease back

Owning your fleet used to be a viable option for cash-rich companies but the steady fall in used car values is leaving fleet owners exposed to unexpected losses. As a result, increasing numbers of companies are turning to Contract Hire instead.

Subject to certain conditions, Sale & Leaseback allows companies to switch the entire fleet immediately to Contract Hire without changing a single vehicle. Alternatively you could have the entire fleet replaced with new vehicles and realise the cash for your current fleet.

Maintenance
For an optional maintenance rental* and subject to availability, the customer can include any or all or the following:

	Maintenance, Service, Repairs, Tyres and Batteries.
	Recovery Service
	Insurance protection

Advantages

	Release immediate capital tied up in the vehicle fleet, which can be redirected to your core business. Turning company cars into company cash!
	Eliminates the risk of further depreciation and disposal worries.
	Makes budgeting easier, as you pay a fixed monthly payment under your contract hire agreement
	Gives you the option of including maintenance costs, relief vehicles and roadside assistance in the fixed monthly payment
	Offers VAT savings by removing your fleet from the balance sheet
	Allows an immediate change to contract hire without any operational implications for your vehicles or drivers. All the normal benefits of Contract Hire (see Contract Hire)

Sale & Leaseback usually makes far more financial and administrative sense than a gradual changeover to Contract Hire.

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Important Note – Driving Options strongly recommend that advice is taken from an appointed Accountant if applicable. Driving Options Ltd do not guarantee the accuracy of the guidance notes provided above and do not accept responsibility for any errors or emissions.