There are many practical reasons to leasing a vehicle over buying a vehicle.
Contract Hire has become the most popular method of acquiring vehicles for private individuals, small and large businesses alike. Contract Hire provides an all-inclusive package that encompasses all the costs associated with running a vehicle covered under a fixed monthly rental. Contract Hire is available on any vehicle make or model and not only provides maximum protection from risk for companies who use it, but is also highly flexible to suit exact requirements.
How does Contract Hire Work?
A Contract Hire arrangement is based upon a fixed contract term from 24 to 60 months and a fixed mileage for the contract. These parameters are chosen to suit your exact needs and expected usage. From these parameters a fixed monthly rental is calculated which remains the same throughout the contract aiding budgeting as all costs are known in advance.
Fully inclusive maintenance cover can also be included. Again, this is a fixed cost as part of the monthly rental, and includes all maintenance requirements including regular servicing, tyre replacement and major mechanical failure. It doesn't matter how much work is required the monthly charge does not change, and there is nothing else to pay. Peace of mind, with no risk.
At the end of the contract the car is handed back to coincide with the replacement, simple as that. No need to worry about disposing of the car at the end of its life and the associated risks regarding the value of used cars.
From an accounting point of view Contract Hire holds many advantages over traditional outright purchase. Contract Hire is VAT efficient with 50% of the VAT on the finance and depreciation element of the rental being reclaimable, and 100% of the services and maintenance element. Companies who outright purchase their vehicles cannot reclaim any VAT.
Contract Hire aids cash flow as it removes the need to tie up large amounts of capital in depreciating assets, capital that could be better invested elsewhere in the business. Rentals can be entirely offset against corporation tax (up to £12,000 capital value), a huge advantage compared to restrictive writing down allowances in the case of owned vehicles as assets.
What are the benefits of Contract Hire?
What are the disadvantages of Contract Hire?
Lease Purchase is the ideal product for fleet funding if your company cannot fully reclaim VAT or if you are looking to fund an expensive car. Lease Purchase provides the perfect alternative for companies that want or require ownership of the vehicle and require the cash flow advantages of Contract Hire or Finance Lease.
Lease Purchase delivers a low monthly rental similar to Contract Hire and Finance Lease, but allows the using company to own the vehicle at the end of the contract.
How does Lease Purchase work?
Lease Purchase can provide the best of both worlds, by removing the need to tie up valuable capital in a depreciating asset, whilst providing ownership of the asset. The disadvantage is that Lease Purchase is not VAT efficient, therefore the VAT has to be either; paid in full up-front or funded into the calculation of the rentals. This makes the monthly payments for Lease Purchase higher than for Contract Hire & Finance Lease.
Lease Purchase is particularly suitable for high value vehicles as it attracts writing down allowances like an outright purchased asset. On vehicles with capital values of over approximately £23,000, Lease Purchase becomes more beneficial from a taxation point of view when compared to Contract Hire or Finance Lease.
What are the benefits of Lease Purchase?
What are the disadvantages of Lease Purchase?
Finance Leasing is a cost effective, but more risky alternative to Contract Hire. Finance Leasing shares many of the advantages of Contract Hire whilst delivering lower monthly rentals.
How does Finance lease work?
A Finance Lease is calculated in much the same way as a Contract Hire arrangement. It involves a fixed monthly rental that is unchanging throughout a fixed contract term. Finance Lease is treated in much the same way as Contract Hire from a VAT point of view, as 50% of the VAT on the monthly rental relating to interest and depreciation can be reclaimed. In addition the rentals can be offset against corporation tax, an advantage of the restricted writing down allowances claimed where the asset has been purchased outright.
At the end of the fixed term the operating company must pay a final "balloon" payment. This balloon payment is pre-determined at the beginning of the contract and estimated to be close to the future predicted value of the vehicle.
At this stage the operating customer is appointed as a sales agent for dcmd and upon selling the vehicle will receive 95% of the sales proceeds as a sales commission to offset against the final "balloon" payment.
As the operating company therefore takes the risks in the disposal and used value of the vehicle, Finance Lease rentals tend to be lower than equivalent Contract Hire rentals.
Finance Leasing aids cash flow as it removes the need to tie up large amounts of capital in depreciating assets, capital that could be better invested elsewhere in the business.
What are the benefits of Finance Lease?
What are the disadvantages of a Finance Lease?
For the private individual the more traditional methods of buying cars i.e. hire purchase, bank loan or from savings are becoming less and less attractive as more sophisticated and cost effective methods become available. In addition, many companies are choosing to give their current company car drivers "cash" instead of a car to allow them to make their own arrangements, and therefore avoid benefit in kind taxation.
How does Personal Contract Purchase work?
Personal Contract Purchase delivers all the benefits of a company car to the private individual, whilst providing the option to take ownership of the car at the end of the contract.
The monthly payment is calculated by taking the initial cost of the car, taking away the future estimated value, and dividing the difference over the number of months you require the car for (plus interest). At the end of the contract you have the option to pay the future value amount ("balloon" payment), as pre-determined at the start of the contract, and the car is yours, or hand the keys back and walk away.
Personal Contract Purchase arrangements can also include a full maintenance package as part of the monthly rental. This provides full cover for all maintenance requirements from regular services, tyre replacements to more involved mechanical repairs. Because maintenance cover is provided as a fixed cost as part of the monthly rental, it removes the risk of unforeseen breakdowns and large repair bills.
Choose our Personal Contract Purchase product and you will also buy into our considerable buying power, which means the front-end cost of the car is less and therefore your monthly payment is less.
Personal Contract Purchase provides a hassle free and flexible method of running your car.
What are the benefits of Personal Contract Purchase?
What are the disadvantages of a Personal Contract Purchase?