As an alternative to purchasing their next vehicle many businesses and individuals prefer car leasing.
There are several types of car leasing in the market place here are a few below.
Contract Hire is the long term renting of a vehicle without the problems of disposal at the end of the term.
Basically the customer pays a monthly fee to the finance company who has bought the car. The finance company take the risk on depreciation loss on the vehicle and are responsible for disposal of it at the end of the contract.
Contracts are usually over 2 to 5 years depending upon the finance company, all business and personal customer have to be under written and pass a credit check.
Monthly payments vary depending on the term, the value of the car, the estimated residual value, the annual mileage agreed and whether the customer requires maintenance with the lease.
A company leasing a car for purely business use can offset the monthly payments against tax.
A percentage of the VAT element of the monthly payments can also reclaimed, 50% on the finance of a car with 100% of the VAT reclaimable on the maintenance part of the payment.
100% of VAT on the finance portion of van leasing payments can be reclaimed providing the van is solely for business use.
Contract Hire helps businesses and individuals to afford a better vehicle than they might expect, as the small initial capital outlay and monthly payments are generally lower than those for a loan.
With fixed monthly costs, budgeting is kept simple especially when you know your commitment in advance.
Contract Hire can be on both new and nearly new cars provided they are VAT qualifying.
Leaseback is of often used by a business who wishes to free up capital for other business funding. This is done when a business that owns its vehicles sells them at an agreed price to a finance company who then leases them back to the business using a VAT favourable funding programme such as contract hire.
This is for the companies who run executive type vehicles and prefer to have an option to buy the car at the end of the contract period without any depreciation risks. The car is paid for on a monthly basis and is shown on the businesses books as an asset on the balance sheet.
When the contract is completed the company can pay the balloon to retain ownership or hand it back to the finance company and start again.
In some situations the value of the car may be more than the balloon payment which can mean the company could possibly make a profit in the transaction by selling the car for more. This however is not always the case.
This is a commercial method of leasing often used by businesses to obtain the use of a vehicle over a set period of time from a finance company that has purchased the motor vehicle and then charges the business monthly payments over the duration of the contract to recover the cost of the vehicle together with some added interest charges.
During the lease the customer is responsible for taxing, insuring and maintaining the vehicle.
Be aware that a finance lease can sometimes be a type of conditional sale or hire purchase. Some conditional sales transfer the risk onto the customer who is responsible to sell the vehicle at the end of the contract to a third party in order to pay the balloon payment.
However, if the customer can not sell the vehicle for the balloon price, the customer has to make up the short fall and pay the finance company the difference. This type of Finance lease is risky.
The finance company is the legal owner of the vehicle during time of the lease.
For more answers on car leasing contact 1st4contracthire