| In today's financial climate more and more | | | | * Elimates all risk on residual values and |
| businesses and private individuals are moving | | | | maintenance costs(Full maintenance) |
| away from buying their vehicles with cash or a | | | | * 50% of VAT is recoverable for VAT registered |
| bank loan and looking at better alternatives, which | | | | businesses on monthly rentals & 100% on the |
| are both more tax efficient and cost effective. | | | | service element if a full maintenance contract. |
| Contract Hire | | | | * Road fund licence included for entire contract. |
| One of the most popular schemes is contract | | | | * Percentage of the rentals allowable against |
| hire, which is now available to private individuals | | | | tax(Business Users). |
| via PCH(personal contract hire) as well as the long | | | | Contract Purchase |
| established BCH(business contract hire) for | | | | This is an alternative type of contract that gives |
| business users. In a nut shell these type of | | | | you similar benefits to contract hire but with the |
| contracts allow you to 'hire' the vehicle of your | | | | option to purchase your vehicle at the end of the |
| choice for a set period usually between 12 & 60 | | | | contract, this is called Contract Purchase and as |
| months, with a low initial rental (usually equivalent | | | | before can be done through your business or |
| of 3 x the actual monthly rental)and at the end of | | | | personally for private individuals. |
| the contract it is simply returned to the funder, | | | | As with contract hire there is a low cost of entry, |
| with absolutely no residual burden for the user. | | | | usually a minimum deposit (3 x your monthly |
| Contract hire is much more affordable from a | | | | payment) and typically you can take a contract |
| monthly payment point of view as you are not | | | | over a period from 12 to 60 months. At the point |
| paying for the full price of the car over your | | | | of negotiation of your contract the funder |
| agreed rental period, you simply pay for a | | | | informs you of what the GFV (guaranteed future |
| percentage of the price, basically you pay the | | | | value) of your vehicle will be, and that is a fixed |
| (initial cost of vehicle) minus (the funders | | | | value it cannot be changed by the funder at any |
| estimated future residual value + Interest), | | | | point once the contract is agreed.You can also as |
| therefore if your chosen vehicle has a strong | | | | per contract hire choose to take your vehicle with |
| residual then your monthly payments would be | | | | full maintenance included for extra piece of mind |
| much cheaper than those of a car with a poor | | | | and tighter budgetary control. |
| residual. | | | | But where it differs to contract hire is that |
| In Layman's terms you could have an Audi or | | | | instead of the vehicle simply being collected from |
| BMW for the same monthly rental as say a | | | | you by the funder at the end of contract, with |
| Mondeo or Passat. With your contract hire | | | | contract purchase you have 3 choices: |
| contract you can also choose to add full | | | | 1. You can choose to simply hand the vehicle back |
| maintenance which means the cost of all standard | | | | to the funder without making the final |
| servicing, replacement tyres, exhausts and | | | | payment(the GFV) and would be 100% free of |
| batteries (due to fair wear & tear) are included, | | | | any further penalties(unless you had gone over |
| meaning that you have a 'no-worries' contract | | | | agreed contract mileage or damaged your vehicle) |
| where you can budget confidently for a vehicle | | | | 2. You may decide you want to keep the vehicle |
| for the full contract term in the knowledge that | | | | and you can choose to refinance over an |
| you wont be getting any nasty surprise servicing | | | | extended period. |
| bills. | | | | 3. Or finally you simply pay the final |
| So to sum up the main benefits of contract hire | | | | payment(GFV) and keep the vehicle so that you |
| to both business & personal clients are as follows: | | | | could sell on privately or part exchange for |
| * Vehicle is shown off balance sheet(protects | | | | another vehicle. |
| gearing ratios) (Business Users) | | | | The other added benefit from a business |
| * Accurate monthly budgeting | | | | perspective is that the vehicle is seen as an asset |
| * Improved Cash flow(Low initial outlay) | | | | on your accounts and therefore you are able to |
| * Fixed monthly rentals unaffected by interest | | | | write down a proportion of its value against your |
| rate rises. | | | | profits. |