Funding Methods

Buying a car used to be a simple matter of visiting a dealer with a cheque book in hand, and coming away with the car you liked.

Today, there is a range of financial products available to the business buyer to acquire a new car.  There is no one size fits all solution.  Dont' worry - our sales team will be able to guide you through the process, and help you decide which option is best for your particular needs.  

 

Cash Purchase

In certain circumstances, an outright purchase may be the best method for a company to acquire a new car.  The car will appear in the company's balance sheet, and will be depreciated over time in accordance with the relevant accounting policies.  For a VAT registered company, the INPUT VAT on the purchase price of a new or qualifying car may be reclaimed ONLY IF THE CAR IS USED EXCLUSIVELY FOR BUSINESS USE.  In the case of a company car being available for both business and personal use, the INPUT VAT may not be reclaimed.

To qualify as being exclusively available for business use, a car must only be used for business journeys, and not 'made available' for private use (e.g. journeys to / from place of work). 

PROS

  • Input VAT can be re-claimed on 100% business usee only cars
  • Appears in fixed assets of company
  • Depreciation will be charged against profit
  • No monthly payments
  • You choose when to dispose of vehicle
  • Capital allowance of up to 100% in Yea 1 (percentage dependent upon Co2 emmissions of car)
  • No Mileage limits

CONS

  • Cash tied up
  • Burden of depreciation to bear
  • Disposal and affiliated costs

 

 

Contract Hire

Business Contract Hire (BCH or business car leasing) is a useful way for your business to get access to a car without the burden of having to legaly own it.  This type of car finance gives yur company exclusive use of a car (usually for periods between 18 months and 4 years), at a fixed montly price.  A lease contract will be based on a fixed mileage limit, agreed at the onset, with any excess mileage charged on a per-mile basis.  At the end of the contract, you simply hand the car back to the lease company.

A Business Contract Hire agreement may be either on a maintained or non -maintained basis.  A maintained contract hire payment will include  the cost of all regular maintenance costs, including tyres, whereas the hirer will be responsible for all maintenance under a non-maintained contract.

Broadly speaking, where there is no private use, 100% of the input VAT on both the rental and maintenance element of the payment can be reclaimed.  Where private use is allowed, 50% of the input VAT on the rental element and 100% of the input VAT on the maintenance element may be reclaimed.

PROS

  • Fixed monthly payments: Leasing offers fixed cost motorsing, which improves cash flow and offers peace of mind for business users
  • Minimal capital expenditure: With low monthly rentals and low initial outlay, leasing offers minimal capital expenditure for businesses looking to drive new vehicles
  • No depreciation risk: Most cars lose between 50-60% of their value dyuring the first three years, however, by leasing the risk is taken on by the funder
  • As most leases only last a few years, you can drive a new car regularly, benefiting from an ever improving standard spec and safety
  • Optional maintenance package
  • Accurate monthly budgeting
  • Road Fund Licence provided (vehicle excise duty paid) for duration of contract
  • No need to worry about depreciation
  • No need to worry about disposal

CONS

  • You can't sell the car: Your business will never actually own the car, so you won't be able to sell it on for profit
  • There is no option to buy the vehicle
  • Cancelling fees: Cancelling your contract early can often result in a large fee
  • Mileage limits: You'll have to pay mileage charges if you clock up excess mileage above what you agreed in your contract
  • Liability for any damage: You need to return the car in the condition that you agreed to at the start of the agreement or you'll fork out compensation for repairs

 

Personal Contract Purchase (PCP)

Primarily aimed at the private user, a Personal Contract Purchase (PCP) may be suitable for your particular business.

The ongoing monthly costs are less than a Hire Purchase, since the instalments you ar making cover the estimated depreciation and any interest costs only.  At the end of the contract there will be a balloon payment, known as the Guaranteed Minimum Future Value (GMFV). This is the GUARANTEED future value of the car at the end of the contract, subject to the car being in good condition, the car being serviced at the appropriate times in accordance with manufacturer service intervals, and the car being within the mileage agreed in the contract.  In essence you are paying the difference between the purchase price (less deposit) and the GMFV, plus interest. 

At the end of a PCP agreement, you may either

1.Return the car to the finance company and walk away.  If the market value of the car is less than the GMFV - NO PROBLEM ! - just return the car.

2.Settle the amount outstanding (GMFV) and keep he car ( or re-finance the GMFV amount).

3.Part exchange the car for a new one.  In this case, we the car supplier would settle the outstanding GMFV, allowing you to use any equity there may be in the car towards a new car / PCP contract.

The monthly cost is determined by :

1.Price of car

2.Amount of deposit (which is flexible, according to your circumstances, from zero to 40%)

3.Mileage

4.Period of agreement

5.Guaranteed Minimum Future Value (GMFV)

PROS

  • Fixed payment
  • Monthly payments significantly less
  • Guaranteed future value - no need to worry about depreciation
  • Flexible options at end of contract
  • Car may be changed prior to the natural end of the contract ( subject to settlement of the balance of finance )
  • No risk of negative equity


CONS

  • Need to be careful in estimating mileage
  • Monthly payment not subject to VAT

Hire Purchase

Buying a car on Hire Purchase (HP) is ideal for those looking for a straightforward finance agreement.  The most crucial difference between this method of purchase and a Business Contract Hire is that at the end of the agreement the car can be yours to fully own upon payment of a final, agreed balance.  Hire Purchase contracts are normally established on a fixed contract basis, which means that the Anuual Percentage Rate (APR) and terms of the loan are set before the contract begins so this approach is helpful when budgeting.

 

You will be the 'registred keeper'of the car, but the finance company is the legal owner until the amount borrowed has been repaid in full.

 

Typically, Hire Purchase agreements start with a deposit (or Part Exchange).  A term is then agreed for monthly payments, usually between 24 and 60 months.  These monthly payments are fixed by the interest rate  set at the beginning of the agreement.

 

The size of the deposit or part exchange will affect the monthly payment, with a larger deposit or Part Exchange reducing this figure considerably.  You will pay more interest on longer agreements, but monthly payments will be less.  The opposite applies to shorter-term contracts.

PROS

  • No mileage restriction
  • You will own the vehicle at the end of the agreement
  • Cars may be changed prior to the natural end of the agreeement ( subject to settlement of the balance of the finance )
  • Fixed payments
  • Input VAT on the purchase price may be reclaimed for BUSINESS ONLY USE cars
  • Appears in fixed assets if the company
  • Depreciation of the vehicle charged against profit

CONS

  • Higher monthly payments than Business Contract Hire / PCP.
  • Burden of depreciation to bear.
  • Disposal and affiliated costs.