There are a number of different ways to finance your business lease. Here at AMT, we specialise in business contract hire but it's worth reading through the other options so you can make an informed choice that meets your business needs.
Business contract hire, also known as business leasing, arrangements are not only tax efficient, they are also one of the most cost-effective and simplest ways to add vehicles to a fleet without having a significant impact on finances.
A monthly rental to lease the selected vehicle is paid over a set period, typically between twelve and sixty months, with a flexible initial payment of either one, three, six, nine or twelve months to be paid after delivery. The vehicle is then returned at the end of the term. Annual mileage requirements, servicing and maintenance options can all be customised and included within the fixed monthly payment if required.
Business contract purchase allows you to enjoy the risk-free element of contract hire, while still having the option to purchase the vehicle at the end of the contract term. That allows you to enjoy low monthly payments, coupled with the freedom to wait until the very end of the contract to decide whether you want to purchase the vehicle. This is especially useful for luxury vehicles that are likely to retain their value.
We will work out a fixed monthly payment plan for you and estimate the vehicle’s likely value at the end of the contract. You can start using the vehicle immediately, making the monthly payments and effectively leasing it. As the end of your term nears, you have a choice; you can either choose to hand the vehicle back to us and walk away from the deal completely, or pay the previously agreed figure to assume full ownership. Alternatively, you can refinance the final balloon payment to spread the cost of buying the vehicle.
A hire purchase plan is a very popular and flexible way for businesses to acquire the vehicle they want immediately and to take ownership of it once the value has been fully repaid.
Hire purchase is a very simple finance option. A deposit payment is agreed – typically a multiple of the monthly payment – and repayments will be calculated based on this figure, the value of the vehicle, and the length of the repayment term. Once all the repayments have been completed, the business will become the legal owner of the vehicle. In some cases, the contract allows a proportion of the cost to be deferred to the end of the term before a final balloon payment is made.
A lease purchase is a popular option for a company that prefers to own its vehicles but likes to spread the payment for them over a fixed length of time. This option is similar to PCP, with the difference being that an agreement to purchase the vehicle at the end of the term is made in advance, with no option for the purchaser to change their mind when the contract ends.
A fixed monthly lease fee and a final balloon payment will be set and agreed at the outset. The balloon payment is based on the vehicle’s estimated future value, or residual value.
When the end of the term arrives, the final balloon payment will be made and ownership of the car will transfer. Or it can be requested that we sell the vehicle on to cover the outstanding value. If the vehicle’s sale exceeds the final balloon payment, 98% of the profits from the sale will be received by the lease holder. Conversely, if the sale value is less than the outstanding amount to pay, you would have to pay the difference.
This option often works out best with luxury cars which tend to retain their residual value extremely well. As the business will be taking on the vehicle as an asset, it will want it to retain as much of its original value as possible in order to benefit.
A business finance lease is a practical and appealing way to gain instant access to a vehicle at an affordable monthly cost. There’s no capital outlay and vehicles purchased in this way will not show up on a balance sheet as assets. At the end of the agreement, any outstanding value can be met by selling the vehicle to a third party.
Essentially, the business rents the vehicle from the finance company for an agreed period. The finance company has ownership of the vehicle but the business (leasse) has exclusive use of the vehicle. The payments made in the contract term are calculated to cover the total cost of the vehicle. Sometimes the lessee pays a balloon payment at the end of the contract, by which point the finance company will have recovered their total investment.
At the end of the lease, there are three options:
