Finance

Hire Purchase

What is it and how does it work?

Hire Purchase is a finance contract that hires a van to you for the term you agree where upon completion of all the payments within the contract allows you to take ownership of the vehicle.

Hire Purchase does not allow you to defer any amount to a final lump sum payment. There are finance products available that allow you to do this, please ask for further details.

Finance rates for Hire Purchase varies from lender to lender, but once agreed the rate remains fixed for the agreed contract term.

What Deposit do I Need and How does it Work?

Hire Purchase providers will expect the VAT element of the purchase price along with an agreed additional amount when purchasing a commercial vehicle. For cars the amount is simply a lump sum, this can vary from lender to lender but 10% of the purchase price is usually a fair guide.

Repayments can be spread over any number of months usually between the range of 24 to 60 months. More commonly contracts are written on either 24,36,48 or 60 months terms.

Hire Purchase providers charge fees for their services, this is normally referred to as an initial upfront fee that is generally payable with the deposit and an option to purchase fee, generally payable with the final payment.

Hire and Lease Purchase are accounted for as assets to your business therefore they appear on your balance sheet.

Our Business approach is to ensure our advice is clear fair and not misleading

We aim to give you honest, unbiased advice. Below we have listed for you the advantages and disadvantages of Hire Purchase.

Advantages

  • Ownership at the end of the contract
  • You can write down the capital cost of the van or utilise your annual investment allowance
  • Purchase cost and interest elements of the agreement may be Corporation Tax deductable
  • Fixed interest rates
  • Budget control with the fianl payment.balloon facility. Ownership passes once final/balloon payment has been made
  • Monthly payments are not subject to VAT
  • No damage or excess mileage recharges at end of agreement

Disadvantages

  • You are liable for the full value of the vehicle, there is a no "hand back" option at the end of the contract
  • For LCV (light commercial vehicles) buyers, the full amount of the VAT must be paid upfront
  • Vehicle appears on your balance sheet
  • You must have fully comprehensive insurance
  • Where a mileage is used to calculate a final rental, exceeding this mileage could result ina finalcial shortfall at the end of the contract

Finance Lease

What is it and how does it work?

Finance Lease is ideal for customers who want the benefit of running a van with a low initial outlay followed by a low monthly rental.

You simply have to agree an initial rental amount. This can be as little as your first month’s rental.

Then you agree a monthly rental and contract period, which can include an acceptable final rental, often called a "Balloon" or "Terminal Rental". This will have the effect of keeping your monthly rentals to a minimum.

There is also an option called a full payout Finance Lease, this is simply a Lease with NO "Balloon" or "Terminal Rental" payment at the contract end.

Once you agree your preferred term and rental plan this remains fixed for the contract term. You will never pay any more, or less than the pre VAT monthly cost agreed within the contract.

Payments are made monthly by Direct Debit throughout the contract term. .

What are the options at the contract end?

·  Part exchange the van, This is the most common option and the principal behind a lease agreement. We use the value of your van and offset this against the "Balloon" or "Terminal Rental" using the vans equity to pay off the "Balloon" or "Terminal Rental". This option will free you up to arrange a new Finance Lease Contract.

·  Pay off the "Balloon" or "Terminal Rental" and continue to use the van entering into a secondary term.

·  In some instances, arrange a further schedule to pay off the "Balloon" or "Terminal Rental".

What are the benefits?

The monthly rentals paid can be offset 100% against your pre-tax profits making it one of the most tax efficient ways of acquiring your new van.

Our Business approach is to ensure our advice is clear fair and not misleading

We aim to give you honest, unbiased advice. Below we have listed for you the advantages and disadvantages of Finance Lease.

Advantages

  • Minimum capital expenditure
  • Accurate monthly budgeting
  • Improved cash flow
  • Fixed monthly rentals
  • No damage recharge as you are responsible for the disposal of the vehicle
  • Reduced administration
  • Commercial vehicles are up to 100% tax deductible
  • Availability of refinancing the balloon payment (exclusions apply to this option)
  • No need to be VAT registered
  • Potential to keep the vehice longer after lease expires (secondary rental applies)
  • Early termination is a possibility
  • Finance terms from 24-60 months

Disadvantages

  • You will never own the vehicle as the vehicle must be sold to a third party at the end of the agreement (see what the options are at the end of the contract above)
  • The responsibility of the vehicle disposl is yours, this means associated depreciaition risks are also yours
  • You must have fully comprehensive insurance
  • Where a mileage is used to calculate a Final Rental, exceeding this mileage could result in financial shortfall at the end of the contract

 

 

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