Amongst the benefits of Personal Contract Hire are:

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

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.

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 installments over the period of the lease agreement.
• Make deferred payments - lower the cost of the monthly installments 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.

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.

Tax Information