Finance Options
If you are an individual looking to finance your next car, there are essentially two options open to you. They are:
Acquire the car on a Personal Contract Hire (PCH) agreement
Acquire the car with a loan / purchase agreement
If you are looking to buy a car and keep it for more than four years then a purchase agreement is probably best for you. However, if you are looking to change the car within the next four years, why not consider a Personal Contract Hire arrangement.
Vehicle finance for individuals, sole traders and some partnerships is regulated by the Consumer Credit Act (CCA) 1974 and subsequent amending Acts. These give substantial protection to you, the consumer, and we would recommend that you study all documentation to make sure that you know your rights under these acts.
The following information is only intended as a guide. You should consult your financial advisor before making any decisions.
Personal Contract Hire – is suitable for the non-corporate and non VAT registered customer. This is mainly for people opting out of company car schemes and wanting to run a vehicle that fits within their monthly budget. As well as the ex company car user, more people are opting for PCH due to the ease of operation of a Contract Hire agreement which provides the following benefits:
You choose the vehicle and decide upon the term of the contract and mileage.
You use the vehicle for the agreed term and pay regular rentals + VAT.
At the end of the contract you give the vehicle back and start again with a new vehicle (terms apply).
This type of regulated agreement is normally a fixed cost, fixed period loan of money to purchase goods where the goods provide security for the lender. It is well suited for the purchase of motor vehicles. You are effectively the owner of the car, but in law the title of the car will not pass until the loan is fully repaid.
A Personal Contract Purchase is a way of reducing your monthly payments compared to a conventional car loan. During the agreement, you only have to finance the depreciation of the vehicle and, at the end of the agreement, you make a single (balloon) payment to complete the agreement and take full ownership of the car.
If your business is making a profit and is VAT registered, Contract Hire is likely to be the best option for you as long as you intend to change the vehicle within four years. However, if you are looking to acquire a vehicle and to keep it for more than four years you may prefer to look at a Lease Purchase agreement.
Contract Hire is a method of funding the use but not the ownership of a vehicle. The vehicle is hired to you for an agreed period (Primary Period of Hire, usually 36 or 48 months) for a fixed monthly sum and at the end of the contract you hand the vehicle back to the supplier.
This type of agreement transfers substantially all the risks associated with ownership to the supplier. You are not responsible for selling the vehicle at the end of the contract, subject to the vehicle being kept in good condition and not exceeding the agreed mileage. Service and maintenance plans can be included with Contract Hire agreements to cater for fixed cost motoring.
You will need to consult with your accountant to fully understand all the implications for your business and how to optimise the tax allowances available using this type of agreement.
In order to obtain the best monthly price the vehicle must be VAT qualifying. This covers all new vehicles and certain second-hand vehicles depending on the previous keeper's circumstances.
Contract Hire is no more expensive than a similar purchase agreement which has a final balloon payment included, and after the tax advantages have been taken into account, it can be considerably cheaper. You could be better off using Contract Hire as the route to funding your next vehicle.
Contract Hire agreements arranged by ourselves now provide the facility to upgrade the vehicle after two years and start a new agreement with us without early termination charges (terms apply).
You should consult your financial advisor to decide what is best for you.
The term 'Lease Purchase' was introduced into the finance industry to describe a Hire Purchase or Conditional Sale contract with a payment structure similar to a lease. i.e. Instead of a deposit, an 'Advance Payment' may be paid. It is normally a fixed cost, fixed term loan and you become the owner of the goods. However, in law, the title will not pass until all the regular payments have been made.
The goods must be kept insured and in good condition.
On cars over the value of £15,000, it may be possible to include a final (balloon) payment on Lease Purchase agreements to help reduce the monthly repayment. You own the vehicle once all payments and the balloon have been paid.
You should consult your financial advisor to decide what is best for you.