This method of finance is widely used by companies both large and small. The leaser will pay back the entire capital cost of the vehicle plus charges over the agreed period and can agree a balloon payment at the end of the contract to reduce the monthly rental. The leaser never owns the vehicle, even though the leaser does not take ownership, he does take on the residual value risk.

Advantages

Low initial deposit with the option of balloon payment

Rentals remain fixed for the period

Rentals are fully available against tax

Contracts can be terminated but will incur settlement charges

Entitled to 95 - 10% of sales proceeds

Disadvantages

Vehicle resale value risk lies with the leaser

Vehicle will be on balance sheet

Leasing companies reclaim input VAT which will reduce the capital cost,which in turn will reduce the monthly repayments. 

 

This is similar to Hire Purchase but purely for the business user. Lease Purchase still allows a balloon payment at the end of the contract which will reduce the monthly payments. At the end of the contract the hirer has ownership of the goods.

Advantages

Rentails fixed for period

Contract can be terminated but will incur settlement charges

Own the vehicle at the end of the contract

Disadvantages

Balloon payment at end of contract must be paid, so business cashflow needs to be healthy to pay a lump sum

The balloon may exceed the vehicle's value due to decreasing residual values

VAT is not reclaimable unless a commercial vehicle

The total VAT element for a commercial vehicle has to be paid with the deposit 

 

A residual value is set by the contract hire company for a vehicle with the mileage and age at the end of a specific period the monthly fee covers depreciation, interest charges. Service / maintenance costs and accident management if required. The hirer does not take ownership of the vehicle, hands the vehicle back at the specified period.

Advantages

Low initial deposit

You do not repay the total cost of the vehicle, the contract hire company has allowed a

Maintenance contract can be included

Annual mileage must be specified helps to keep monthly payments low

Disadvantages

Vehicle must be returned with specified mileage otherwise high excess mileage charges are incurred

Not suitable for fleets that have inconsistent mileages 

 

Hire purchase is for the private individual and business users. The difference for the business user to Lease Purchase is that there is on balloon payment at the end. At the end of the contract the hirer has ownership of the goods.

Advantages

Rentals fixed for the period

The contract can be cancalled at any time but will incur settlement charges

The hirer has total ownership of the goods

Disadvantages

VAT is not reclaimable unless a commercial vehicle

The total VAT element for commercial vehicles is payable with the deposit