When it comes to leasing a vehicle, you may be unsure which option is the best for you. There are two different uses of vehicle leasing, business or personal. Within these two types of lease, there are a further three options to choose from. In this guide, we outline each different financing option, so you can make an informed decision.
When you lease a vehicle there are strict rules and restrictions, so make sure you understand how it works.
|Do I have the option to own the vehicle at the end of the agreement?||No||Yes||Option|
|How long do the contracts usually last?||24-60 months||24-48 months||24-60 months|
|Is an optional maintenance package available?||Yes||Yes||No|
Typically a 24-60 month contract with no option to buy at the end of the agreement.
In order to be eligible to take out a BCH agreement, your business must be a sole trader, partnership, limited company or a public limited company. The agreement is subject to VAT, 50% of which can be claimed back.
BCH gives you the flexibility to manage your vehicle finances all in one cost-effective plan.
Eligible businesses are able to rent a single or a whole fleet on a contract that can last anywhere between 24-60 months. A business does not get to keep any assets at the end of the agreement. You have the option to include vehicle service maintenance and repairs in your contract.
A set mileage allowance between 10,000 miles per annum and 40,000 miles per annum will also be agreed at the start of the contract. There might be extra charges if you exceed the mileage allowance, so make sure to choose a plan that suits you.
A minimum down payment of 3 monthly payments is required, and the minimum down payment is to be paid in advance.
At the end of the contract, your business can choose to either return the vehicle or extend the leasing agreement.
If the vehicle is returned to the dealership it will need to be handed back in good condition, and meet the standards of the BVRLA ‘Fair Wear and Tear’ guidelines. Should the vehicle(s) have sustained any damage, there may be a cost to cover the repairs.
Typically a 24-48 month contract with the option to pay a final balloon payment at the end of the agreement.
BCP agreements are designed for VAT registered companies who want to own their vehicle(s) without the worry of depreciating assets or having to pay VAT on the monthly payments.
BCP contracts last from 24-48 months, and you will be required to pay for the vehicle(s) in monthly instalments. Pay an initial deposit followed by monthly instalments, then put your business vehicle to good use.
You may be expected to pay VAT on any service costs if you take out an optional maintenance package.
You have the option to pay a final balloon payment at the end of the agreement should you wish to own the vehicle(s). You are not obliged to buy the vehicle(s) at the end of the contract, however, the option to buy is available should your business wish to keep the assets.
There are three options available when finance leasing ends:
Pay for the total value of the vehicle(s) over the course of your finance agreement and have full ownership of the vehicle(s)
During the course of your finance agreement, your business will pay for the total value of the vehicle(s) rather than renting them in fixed monthly instalments. Once the agreement has begun, the vehicle(s) will belong to your business. However, you are required to purchase the vehicle(s) at the end of the contract by paying an optional final balloon payment.
At the beginning of the agreement, you will be required to pay the deposit and the VAT upfront. Once this has been paid, your company will have full ownership of the vehicle(s). By signing the contract, you acknowledge that your company is liable for the full value of the vehicle(s).
Once the agreement has ended your business will own the assets outright. There is no option to include maintenance or other value-added services.
|Do I have the option to own the vehicle at the end of the agreement?||No||Yes||Optional|
|How long do the contracts usually last?||24-60 months||24-48 months||12-60 months|
|Is an optional maintenance package available?||Yes||Yes||No|
Pay the cost of depreciation and the interest over 24-36 months. You won’t own the vehicle at the end of the contract unless you choose to pay the final balloon payment.
With a PCP finance agreement, you can hire a vehicle at the cost of an initial deposit and monthly instalments. When the contract comes to an end, you have the option to keep the vehicle by paying a final balloon payment.
However, unlike a normal loan, you won’t pay off the full value of the vehicle, just the cost of depreciation and the interest. You also won’t own the vehicle at the end of the contract, unless you choose to pay the final balloon payment.
It can be broken down into three parts:
At the beginning of your PCP agreement, the vehicle’s expected value at the end of the contract is set. This is known as the Guaranteed Minimum Future Value (GMFV). It means that you will repay the depreciation of the vehicle – the difference between what the vehicle is worth at the time your PCP agreement starts and what it will be worth at the end of the contract.
Your monthly instalments will cover the cost of both the vehicle depreciation and interest, which is calculated in the full value of the vehicle. It does mean that your monthly instalments will be lower, but you will need to make a final payment at the end of the contract if you decide you wish to keep the vehicle.
Pay set monthly instalments over 12-48 months. You return the vehicle to the dealership at the end of a Personal Contract Hire agreement; there is no option to pay a final purchase fee.
One of the most popular ways of leasing a vehicle, Personal Contract Hire is only applicable to individuals and not businesses. You won’t own the vehicle, but you do have the option to choose a new one when your existing contract ends.
At the beginning of the agreement, you will be expected to pay a deposit, which is normally equivalent to 6, 9 or 12 monthly instalments.
You will then pay a set payment each month and agree a set mileage for the duration of your lease. If you exceed the agreed mileage limit, you may need to pay an excess mileage charge. PCH agreements can last between 12 to 48 months, but generally the longer the agreement, the lower the monthly instalments.
A PCH agreement gives you the option to include vehicle service maintenance and repairs in your monthly instalments, to keep your vehicle finances all in one place.
Once the contract ends, you will be required to return the vehicle to the dealership.
Pay monthly instalments on the entire value of the vehicle. Once all the payments have been made, you will have full ownership of the vehicle.
Pay a deposit and a series of regular monthly instalments. The amount you pay will cover the entire value of the vehicle. Once all the payments have been made, you will have full ownership of the vehicle.
Your monthly payments will cover the entire value of the vehicle, unlike a PCP finance agreement. An agreement like this can last from 12 to 60 months, or up to 5 years.
Hire Purchase allows you to put a deposit down; this usually equates to 10% of the vehicle’s value. Once you have paid the deposit, you then pay the rest of the vehicle’s value in monthly instalments over an agreed period of time. In order to get the lowest interest rates possible, you will need to have a good credit rating.
When the agreement ends and you have paid all of the instalments, you are the official owner of the vehicle and it is yours to keep. If you decide you want to sell it on, you can, the choice is yours.