How it works…
Here are the main funding options available in today's marketplace to business and personal clients and we have listed the key points for each type below.
Business Contract Hire(BCH) & Personal Contract Hire(PCH)
This is the most popular type of funding today as it allows you to lease a new car for a fixed term with no financial risk of losing money on your vehicle at the end of the contract.
- You can choose the term & annual mileage for your own bespoke contract.
- The contract gives you fixed rentals for set period, so you can budget accordingly.
- With the added optional benefit of a Full Maintenance package you can truly budget for the entire life of the vehicle contract as all your Road tax, servicing, maintenance and replacement tyres (due to fair wear & tear) costs are included within the monthly rental, so no surprise bills.
- For companies it also removes what would be a depreciating asset from the companies balance sheet.
- Simply hand the car back at the end of the contract, with no residual risk to you.
Business Contract Purchase (BCP) & Personal Contract Purchase (PCP)
- Contract Purchase is similar to Contract Hire in the fact that you can choose the term & annual mileage for your contract.
- Full maintenance package can also be included in the contract.
- The funder guarantees the future value of the vehicle on the contract purchase agreement at the outset, therefore you are aware of the final fixed value at the outset of the contract.
- You can choose to pay the final fixed value at the end of the contract and take 100% ownership of your car or you can simply choose to handback with no penalty to yourself.
- The rentals are not subject to VAT as it is a Conditional Sale (Purchase) agreement. Although if you choose the option of Full maintenance that portion of the rental is subject to VAT.
Finance Lease
- Finance lease allows your business to fund the entire cost of your new vehicle over a set period or a percentage of the vehicle cost with a final 'Balloon' rental at the end, this 2nd option obviously allows you lower monthly rentals for the contract term which assists with budgeting.
- As with contract hire, you agree the term and annual mileage at the beginning of the contract which also assists with setting the final 'Balloon' rental.
- At the end of the contract when all rentals, including balloon rental, are paid then you can choose to go into a 2nd phase of lease with a 'Peppercorn rental' where the funder charge you a set nominal annual amount for you to continue to use the vehicle after the lease has ended.
- Due to the tax benefits your business will receive over the life of the lease, you can never take ownership of any vehicle that you lease, hence the peppercorn rental option.