Contract Hire

is the leasing of a vehicle, normally to a vat registered business or company, for a set time and mileage at a fixed monthly rental. The monthly rental is determined by the cost of the vehicle, the period and mileage covered as well as the resultant depreciation. Maintenance packages are often included within Contract Hire agreements, but are not obligatory.

Contract Hire benefits

There are many benefits of contract hire, some of these advantages are listed below:

• Contract hire offers fixed-cost motoring.
• VAT can be reclaimed on 50% of total payments made and 100% on the maintenance package costs.
• Hire Rental Tax Allowances can be applied when opting for contract hire.
• Residual value is no longer a risk that you face.
• There is no large initial outlay as the costs will be evenly spread out in monthly payments.
• Cars / Vans can be changed on a regular basis - allowing fleets to run the latest vehicles.

Contract hire is very popular choice amongst VAT-registered companies who wish to have the assets shown on their balance sheets and to handle the administration of the company vehicles.

Lease Purchase

is a method of financing a vehicle, normally for VAT registered businesses or companies. The monthly rental is determined by the cost of the vehicle, the period and the estimated future value of the vehicle which is based on the proposed annual mileage. A payment equivalent to the estimated future value is payable at the end of the contract, when the vehicle becomes the property of the lessee. Maintenance packages are often available, if required. Lease Purchase is a cheaper monthly alternative to Hire Purchase, the traditional method of financing, and is written on a hire purchase agreement with the protections afforded by the consumer credit act.

Lease Purchase - Advantages & Disadvantages

What are the main advantages of using Lease Purchase?

• Lease Purchase requires only a small initial deposit and low monthly payments.
• Companies that choose lease purchase are able to put the money that is held back into their company at an early stage.

What are the disadvantages of Lease Purchase?

• A balloon payment will need to be paid at the end of the agreed lease period. In some cases this may exceed the residual value of the car and companies need to be certain that they have finances available to make these balloon payments when they are due.
• VAT is only reclaimable if the vehicles are used only for business use.
• Due to loss of residual value and maintenance costs, the task of managing a fleet of lease-purchase vehicles requires expert handling.

Finance Lease

is a VAT free method of financing a vehicle, normally for VAT registered businesses or companies. The monthly rental is determined by the cost of the vehicle, the period and the estimated future value of the vehicle which is based on the proposed annual mileage.

A payment equivalent to the estimated future value is payable at the end of the contract. At the end of the contract period, the vehicle is sold and the proceeds returned to the Lessee. Maintenance packages are often available, if required.

There are 2 options that can be taken when opting for the finance lease method. They are:

• Pay the entire cost - the cost of the vehicle and interest payments can be paid in monthly instalments over the period of the lease agreement.
• Make deferred payments - lower the cost of the monthly instalments by making deferred payments and opting to make a balloon payment at the end of the lease agreement. You should keep in mind the fact that you will never take ownership of the vehicle as the balloon payment must be paid to the finance company and the car or van must be sold to a third party.

Finance Lease benefits

The main benefits of finance lease are:

• Low monthly costs and low initial outlay.
• 50% of the VAT payments can be reclaimed.
• Hire Rental Tax Allowances can be applied for.
• Adding another asset on to the balance sheet.
• Equity in the proceeds of the vehicles sale.

Finance Lease is a fixed-term finance method that will show the vehicles as an asset on a companies balance sheet.

Personal Contract Hire

as its name suggests, is essentially the same as Contract Hire but for private individuals. If you want fixed cost motoring, or have opted out of a company car scheme then Personal Contract Hire could provide you with hassle free motoring without the residual value risks associated with traditional ownership.

VAT is built into the monthly payments, but is not reclaimable by private individuals. Maintenance packages are usually available so that you don't get any nasty surprises.

Personal Contract Hire Benefits

Amongst the benefits of Personal Contract Hire are:

• Being able to hire both new and used vehicles at fixed prices.
• Road Fund Licence included in lease agreement.
• Full maintenance package included.

Personal Contract Purchase

(PCP) is a method of funding where an individual leases a vehicle for a set period at a fixed monthly charge.

At the end of the contract, there is an optional balloon payment which the individual can pay to buy the vehicle otherwise they can choose to return the vehicle with nothing further to pay. The monthly charge is governed by the initial cost of the vehicle, the mileage covered, the period of the agreement and the estimated value of the vehicle at the end of the contract.

In addition, features ranging from basic servicing to total vehicle management packages can be included if required. PCP is an alternative to Hire Purchase, the traditional method of financing, and is covered by the protections as set out in the consumer credit act.

Personal Contract Purchase usually costs more than hire purchase and on occasions is offered to former company car drivers. The main advantage of PCP is the low monthly costs and the added bonus making previously unaffordable cars attainable. Servicing and maintenance can also be included within the agreement which will provide the driver with fixed-price motoring.

Personal Contract Purchase Benefits

There are several benefits to Personal Contract Purchase, amongst these include:

• Only a small deposit is required.
• Payment can be deferred by including a balloon payment at the end of the personal contract purchase agreement.
• There is also the option to refinance the balloon payment at the end of the contract.

Short term car leasing

is an excellent option for those who are looking for a lease agreement that falls in between daily car rental and a popularly used 2 – 3 year contract.

The average length for a short term car lease is from 3 – 12 months although some leasing companies do offer rolling contracts of 28 days.

Attractions of short term car leasing.

There are major benefits that short term car leasing offers over other finance methods such as Personal Contract Hire & Daily Rental. These are:

• A new or different car every 3 -12 months.
• Car can be leased on a rolling 28 day contract offering great flexibility.

Who uses short term car leasing?

Short term car leasing is often used by companies who have:

• Staff on probationary periods (normally between 3 and 6 months). This gives the employers the ability to terminate car agreements on short notice.
• Fluctuating vehicle requirements – one month an employee may need a car, the next they may need a van. Short term car leasing allows the freedom to change vehicle type several times a year.

In the majority of cases a Road Fund Licence will be included within the lease agreement. This method is often used as stop-gap measure for motorists whilst they work out alternative means. On ContractHireAndLeasing.com there are hundreds of companies who offer this service, simply click on the following link to view their offers.

Why Lease?

The majority of business users lease vehicles and an increasing number of private individuals are leasing vehicles because using vehicles simply makes more sense than owning vehicles when the true costs are calculated. Leasing removes all of the problems associated with owning vehicles.

What deposit do I need?

The amount can be tailored to meet your exact personal requirements. Initial payments start from as low as just one rental in advance. Obviously, the higher the initial payment the lower your monthly rental will become.

Is VAT reclaimable?

Business users who are VAT-registered can currently reclaim a minimum of 50% of the VAT payable on each contract hire payment. This is assuming that the vehicle will be used for both business and personal use. You may be able to reclaim the whole amount of the monthly VAT if the vehicle is used solely for business use.

If you decide that you wish to include servicing then all business users who are VAT-registered can reclaim 100% of the VAT on each monthly rental. Recoverable VAT only applies to VAT-qualifying agreements such as Business Contract Hire and Finance Lease.

Private individuals can't reclaim any of the VAT on the monthly rentals.

Who insures the vehicle?

The Lessee is responsible for insuring the vehicle on a 'Fully Comprehensive' basis.

Are there mileage limits?

You pre-agree your mileage when you take out the contract. The mileage bands typically range from 6,000 to 40,000 per annum. Monthly rentals increase with higher mileage because of the greater depreciation factor and higher servicing costs. If you exceed the pre-agreed mileage then an excess mileage charge will be applied. The figures will be provided on your quotation and finance documents.

Who pays for servicing?

End users (business or private) must ensure that their vehicles are serviced in accordance with manufacturer's service intervals and that service books are presented and stamped. When repairs are necessary these should be undertaken as soon as possible. Should any maintenance or servicing be required outside recommended service intervals, authorisation must be sought from the relevant Leasing Company before any work commences.

Until recently only Franchised main dealers could carry out servicing and repairs. Now servicing and repairs have to be carried out by main dealers only whilst the vehicle is under Warranty. Thereafter any recognised dealer/body shop will be able to carry out servicing and repairs, as long as they are VAT registered and use manufacturers parts or parts recognised by the manufacturer.

What's covered in a fully maintained contract?

Any servicing recommended or required by the manufacturer and most items not covered by the manufacturers Warranty. e.g. replacement tyres, fair wear and tear only, not punctures. Windscreens and Glass replacement is not included as this is usually covered by the lessees insurer.

What happens when the Road TAX is due?

If Road Fund Licence is included in the contract, a new disc will be issued approximately 7 days in advance of expiry of current licence.

What about the M.O.T.?

A vehicle requires a M.O.T. certificate on the third anniversary of its’ registration. A leasing company will inform the Lessee in advance of the date. It is the responsibility of the end user to submit the vehicle for an M.O.T. inspection and ensure that the appropriate certificate is forwarded to the Leasing Company without delay to enable them to re-tax the vehicle.

Can I drive in Europe?

If the vehicle is to be taken abroad, the Lessee must inform the Leasing Company and obtain the appropriate authority with evidence of relevant insurance documentation. If a leased vehicle is taken out of the UK, it is mandatory that appropriate cover be taken out with one of the major motoring organisations to include repatriation, replacement vehicle and temporary hotel accommodation.

What about fines and penalties?

A lessee must pay any parking or other road traffic fines relating to the use of the vehicle. If a Leasing Company is asked to pay a fine on your behalf, they will recharge you or your company along with an additional administration fee.

If you are required by the police to produce either the vehicle's registration document or MOT certificate, please advise them that the vehicle is leased and that you will arrange for the Leasing Company to produce them on your behalf.

What happens at the end of the contract?

The Leasing Company will advise in advance when the vehicle is due for return and arrange a mutually convenient time to collect the vehicle. At this time the Leasing Company will arrange for a full inspection to be carried out and will complete a formal report to the condition of the vehicle. The Lessee will be asked to sign the report confirming that they are in full agreement of the assessment. The manufacturer's handbook, service records, and all spare keys are returned with the vehicle. Vehicles are to be returned free of any personal belongings (stickers, badges etc.), free from damage and in a clean condition inside and out.