Hire Purchase
A more traditional way of financing vehicles. Hire Purchase (HP) is rapidly losing ground since the introduction of newer and more suitable finance products, especially in a market of falling residual values. HP is a fixed cost & period loan that supports a purchase. The customer is effectively the owner but title doesn't pass over until the loan is repaid fully. Since it constitutes a loan, monthly HP payments do not carry VAT.
Lease Purchase
Lease Purchase is very much like a Hire Purchase contract that includes a single larger payment at the end of the contract (balloon payment). This will reduce the monthly payment during the contracts life. Repayments do not carry VAT, for tax purposes capital cost is written down in the same way as Hire Purchase.
Leasing Options
Contract Hire Contract is the leasing of a vehicle, normally to get 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.
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 the basic servicing to total vehicle management packages can be included if required. PCP being an alternative to hire purchase, the traditional method of financing, is covered by the protectors as set out in the consumer credit act.
However be aware of the excess mileage charges and de-hire damage charges that may apply at the end of your contract. Often canceling a contract earlier can be very expensive up to 50% of the outstanding payments might be charged as a cancellation fee.
Finance Leases Finance lease is a VAT free method of financing a vehicle, normally for a VAT registered businesses or companies. The monthly rental is determined by the cost of the vehicle, the period and 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.
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