If you are a sole trader wanting one van or a multinational company requiring a fleet of cars, you may not have the money required to buy the asset. The best way to fund your asset need is commercial vehicle finance. It is a form of asset finance, it basically allows you to lease a vehicle, or a fleet of vehicles, in return for an amount. There are different types of commercial vehicle finance and leasing schemes, and even those where you can buy the asset at the end and those where you can’t. Since there are many options and a range of providers, it can get complex to get through. So here’s a general overview of the main forms of vehicle leasing, although the details will vary depending on the provider:
This is one of the simple way of spreading the cost of your new car. Here you pay a fixed rate of interest and fixed monthly repayments, making your budgeting process simple. You get an option to put how much ever you want to put as deposit and the remainder is paid back over the terms agreed upon. This is a low deposit which does not require you to put thousands of pounds that can be used for the business. Hire Purchase does not require for you to make any compromises on other lines of credit and you get to own the vehicle. Business users get tax breaks and no VAT applied on repayments
Contract hire is suitable for VAT-registered companies and people whose 100 percent of the VAT can be reclaimed, only if the vehicles are used for business purpose. If any element of personal use then 50 per cent of the VAT can be applied the vehicle is hired for a fixed period of time, usually a 12 month period and a rental is paid on the basis of a pre-agreed annual mileage. Contract Hire also adds the servicing and maintenance of the vehicles. As the agreement ends, the assets are given back to the finance company. Excise Duty on vehicle is added for life of the agreement and will come to you automatically the monthly rentals will remain same for the duration and the residual value is factored in, making the repayments lower with this option.
Finance leasing is the best choice for business users and for vehicles if contract hire is not a great option. You can make either spread the entire cost of the vehicle and the interest over the fixed period, or choose to pay less per month based on the making of the final payment in accordance with the estimated resale value. Payments made monthly and interest rates are fixed till the agreed parameters don’t change. As soon as the contract ends you can choose to continue to operate the vehicle, but with no actual ownership. Payments are susceptible to tax deduction.