Vehicle finance – do you understand the options? Where once it was a simple choice between cash purchase or a bank loan, there are now so many options when it comes to funding a new vehicle that it can be tricky to know if you’re making the right decision. That said, it’s also easier than ever before to find a financial product to suit your needs, so the key is to make sure you have the right advice ahead of signing on the dotted line.
Before speaking to a broker, though, it’s worth knowing the basics of the different finance options, so that you can focus on more on weighing up the pros and cons for your own personal circumstances. Here’s our quick and easy guide to five of the most common ways to fund a new vehicle:
Hire purchase (HP)
Hire purchase is quick and easy to arrange. You’ll likely pay a 10% deposit and, in the case of a commercial vehicle, the VAT; flexible repayment terms are available at competitive fixed interest rates over periods between 12 and 60 months. You can choose to add a balloon payment if you want to reduce the monthly payments – this will be determined by the vehicle itself and expected mileage. After the final payment, you’ll own the vehicle.
Contract Purchase (CP)
Contract purchase is a vehicle finance option similar to HP, but you’ll make lower monthly payments. Rather than repaying the entire loan in equal monthly payments, the anticipated value of the vehicle is effectively deferred until the end of the initial period. The anticipated value is based on the period of the contract and expected mileage, and is usually referred to as the guaranteed future value (GFV) – essentially the value is guaranteed to cover the final payment of the loan. Depending on the lender, both companies and private individuals can undertake a contract purchase.
Agreements are usually between 24 and 48 months long, depending on vehicle type and mileage, and at the end of the initial period you have a choice of options. You can simply hand the vehicle back, and – providing the mileage is within the agreed total and the vehicle isn’t damaged – have nothing more to pay. If the actual value of the vehicle is more than the final payment (GFV) you can part-exchange the vehicle; the funds remaining after settling the finance can be used as a deposit on a new agreement. A further option is to simply make the final payment and own the vehicle outright.
Business Contract Hire (BCH)
Business contract hire is when you pay a fixed monthly amount for the use of a vehicle; it’s a long-term hire typically between 18 and 60 months, and it is available to companies or sole traders. Servicing and maintenance can be included, and you don’t have to worry about value depreciation. You will need to pay an advance rental – usually the equivalent of three, six or nine months’ rental – and pay additional charges if you go over the agreed mileage, or if you return the vehicle with damage.
Personal Contract Hire (PCH)
Personal contract hire is another option you might want to consider; it’s the same sort of deal, but rather than a business taking out the agreement, it’s an individual. Standard contracts range between 18 and 48 months. In both cases, and for even more peace of mind, you can include full maintenance and tyres to the monthly rental cost.
Finance Lease (FL)
Finance lease is available to VAT registered companies or sole traders, and you can choose whether to pay the entire cost of the vehicle across the agreement period (usually between 24 and 60 months), or have lower monthly repayments and make a final balloon payment. At the end of the agreement, the vehicle should be sold to a third party and most of the sales proceeds will be received by the business (usually between 95% and 99%).
To find out more about these finance options, and to discuss your individual circumstances, call TysonCooper on 01473 372020, or contact us through our web form. You’ll also be able to find out more about the various membership schemes we run (such as for IMechE, RIBA, RICS, BASC, Fram Farmers, M&S and XEXEC) which allow members to access exclusive discounts on new cars, pick-ups and vans.