Personal Contract Hire

Personal Contract Car Hire is the convenient, low cost alternative to traditional funding methods and is the favourite method of funding for people opting out of their company car scheme as opposed to business contract hire.

With personal contract hire deals also known as Private car leasing or Personal contract finance, in return for a fixed pre-determined stream of rental payments, the finance company supplies the vehicle and takes full responsibility for its depreciation, funding costs and administration. If an including maintenance contract is taken this is also extended to the provision of all servicing and repairs this excludes accident repairs but does include tyres, exhausts etc. It also typically covers the road fund licence and where specified or opted for, a replacement vehicle as well.

The rental calculation is based on time, mileage, and also the cost of maintenance where this is included in the contract.

Key Benefits

• Low deposit.
• Flexible deposit terms.
• Low monthly payments, particularly on prestige cars due to strong residual value.
• Fixed costs.
• Choice of rental periods.
• No depreciation or disposal issues.
• No final payments.
• Maintenance on cars can be included.

Finance Lease

Also known as Corporate car lease, Private Car Lease or Car Finance Lease uk. This is an ideal funding method for VAT registered companies that wish to handle the administration of their vehicles and have the asset shown on their balance sheet. This may be either a balloon or fully amortised lease. The former has a larger final payment set at the outset, the latter has the total costs plus interest repaid in monthly instalments over the terms of the lease. Although title remains with the Lessor (finance company) the Lessee (user) is responsible for selling the vehicle. The disposal proceeds can be funded as a rebate of rentals, though the lessor will keep a percentage of the sale proceeds or a percentage of its original price.

If a balloon is involved then, providing this is repaid, typically no additional charge is levied. As with contract hire, the lessor has been able to reclaim the VAT levied on the purchase price of the new vehicle. This has the effect of making a Finance lease rental lower than the equivalent Lease Purchase repayment. The rental carries VAT. This can be reclaimed by the lessee, although (as with contract hire) the reclaim is restricted to 50% if there is any element of private use.

The rental is based on time but if a balloon is used then the mileage will be important as this will affect the residual value and in particular the quantum of the final balloon payment.

Key Benefits

• Low deposit.
• No mileage restrictions, although you will end up paying for the depreciation for the miles travelled.
• Offers the VAT advantages of Contract hire.

Purchase and Lease Back

For companies wishing to retain the use of their vehicles, yet generate capital from the sale, whilst transferring to a VAT beneficial method.

Key Benefits

• Releasing Capital

Lease Purchase

Also known as Corporate car lease, Personal car finance, Private Car Lease or Car Finance Lease uk. Ideally For non-VAT registered companies that want eventual ownership of the vehicle or for VAT registered companies who wish to claim the VAT in full with their first payment on a commercial vehicle. Technically impossible (since lease means rental not purchase) but so called in the vehicle supply industry. Lease Purchase is effectively a Hire Purchase contract that includes a single larger final payment at the end. This is called the balloon payment and reduces the monthly repayment during the life of the contract. Repayments do not carry VAT and the capital cost is written down for tax purposes in the same way as for Hire Purchase.

Key Benefits

• Low deposit.
• No mileage restrictions, although you will end up paying for the depreciation for the miles travelled.
• Allows you to own the vehicle.

Contract Purchase - Personal Contract Purchase

For companies and personal contracts, with high value cars that would like the option to purchase their vehicles, but don't want any depreciation risks. Can be known as Persona car Finance, PCP, or CP This is a conditional sale agreement, structured as the user contracting to purchase the vehicle over a set period of time. It typically incorporates full maintenance. There is usually a final balloon payment (i.e. a single large final payment), after which legal ownership passes to the user. In practice most users do not make the final payment, opting instead to return the vehicle to the finance company, thereby avoiding the burden of disposal. The repayment figures and maintenance element are based on time and mileage. Like other purchasing schemes the vehicle is purchased exclusive of VAT and repayments do not carry VAT accept for the maintenance element if taken of which 100% is recoverable.

Key Benefits

• Low deposit.
• No mileage restrictions, although you will end up paying for the depreciation for the miles travelled.
• Allows you to own the vehicle.

Hire Purchase

After choosing the vehicle you want simply pay a deposit to suit your available capital (normally 20%) and your monthly payments are then made over an agreed period.

A fixed cost, fixed period loan to support purchase. The user is effectively the owner but title does not pass until the loan is fully repaid. It is on balance sheet for the user. As they constitute loan repayments. Payments do not carry VAT. The capital cost can be written down for tax purposes on a reducing balance basis with up to £3,000 capital allowances available against taxable profits per annum. Interest (usually without limit) is also allowed against tax.

These allowances may be restricted if there is an element of private use.

Key Benefits

• Allows you to own the vehicle.
• Fixed payments choice of repayment period.
• No final payments.
• Low initial outlay.
• No mileage restrictions.