Contract Hire/ Personal Contract Hire
This is a form of long-term rental, whereby a `deposit` or initial payment (usually equivalent to 3 monthly rentals) is paid, followed by a further 35 monthly rentals. Contracts can be over any period between 24 and 60 months.
Business contract hire rentals are subject to VAT, of which 50% on cars and 100% on commercial vehicles can be reclaimed. Personal Contract Hire rentals include VAT. The contract also includes Road Fund Licence for the duration of the agreement.
You can choose either a non-maintenance contract, or opt to include servicing, routine maintenance and tyres. Replacement vehicle cover can also be included.
The rental cost is calculated on the particular vehicle (including any extras) and is based on the estimated annual mileage, period of contract and maintenance required.
Your vehicle is delivered and collected at the end of the contract.
Contract Purchase/ Personal Contract Purchase
This finance option is similar to Contract Hire and Personal Contract Hire as above, but the main differences are:
- VAT is included in the payments
- Road Fund Licence is only included for the first year
- You have the option of purchasing the vehicle at the end of the contract for a pre-determined `Guaranteed Future Value` or returning it to the contract hire company
- There are normally documentation fees or sales agency fees required
Hire purchase spreads the vehicle purchase over an extended term. A larger deposit is required (minimum of 10%), with the balance paid over a set period, usually between 3 and 5 years.
With hire purchase there is no mileage restriction and at the end of the term, the vehicle is the property of the customer.
This option is similar to hire purchase, but with a ‘balloon payment’ at the end of the agreement. This payment should ideally be no more than the anticipated resale value of the vehicle because the vehicle is usually sold to cover the balloon payment.
The balloon payment reduces the monthly payments, but sometimes timing the sale of the car to coincide with the balloon payment can cause a problem.
With lease purchase there is no mileage restriction and ownership passes to the customer upon completion of all payments.
This option is particularly suitable for VAT registered businesses. Finance is calculated on the vehicle value excluding VAT. Monthly payments are then subject to VAT which can be claimed back (subject to Inland Revenue rules regarding disallowance).
A one-off larger payment may be made at the very end of the lease period to reduce the monthly rentals, this is often referred to as a ‘balloon payment’. At the end of the finance term, the business is responsible for selling the vehicle to a third party and retains 95% of sales proceeds, which can be used to pay the balloon payment (if any).
With a finance lease contract there is no mileage restriction.
Sale and Leaseback
Sale and leaseback involves selling your existing fleet and then contract hiring them back again. This is a good way of entering into the contract hire marketplace without causing an upheaval to your existing plans.
This option can also be used when goods are purchased from outside of the UK.
Please call us to find out more.
We have arranged the purchase of cars and vans for many of our customers. In the process, we have saved them several hundred pounds by using our excellent contacts in the marketplace. Should you wish, we can also provide a hire purchase facility at the same time, but sometimes our customers prefer to pay cash. Either option is viable.
Please call us to see how much money we can save you.
Trafalgar Leasing and Asset Finance are authorised and regulated by the Financial Conduct Authority.