Car Leasing Information

On this page you will find lots of useful information about Contract Hire, car leasing and Personal contract Purchase (PCP). All of which conforms to the rules and regulations that the British Vehicle Rental and leasing Association.

Please chose from one of the following sections;

Finance Methods

Contract Hire

Contract hire is effectively just another kind of operating lease which is provided to those in both business and private sectors. Each contract can be made to suit the requirements of each individual and depending on need, can run from 2 to 5 years.

Why has contract hire become so popular? The tax incentives and lower administration levels (allowing for much more accuracy in any given budget) encourage businesses to opt for contract hire or car leasing. Limited companies, partnerships and sole traders are also eligible. So, it saves time and budgeting is simple with regular payments.

Effectively, the contract hire is an all encompassing management system for your vehicle. Offering sourcing, finance and eventual vehicle disposal, even car maintenance (tyre replacement, AA/RAC recovery and general maintenance) can be included if you so wish. Provision of a relief vehicle is also an option for any unfortunate breakdowns.

The finance company removes all the stress by dealing with all of the details of contract hire, from vehicle management to vehicle maintenance (optional).

So, how does it work?

When you enter into a contract hire agreement, regular, fixed payments are made. It differs from traditional HP in the sense that at the end of the term, you return the vehicle to the finance company. In many cases, this means deposits and monthly payments are lower than either a loan or HP in its most common form. Selling the car is no longer your problem because any depreciation in value has been factored into the initial agreement and payments will have been reduced with this in mind.

If you have opted for a maintenance package, this along with your estimated mileage, the model of the car and contract length will help to determine what your monthly payments will be. Looking after the car is important; anything beyond an acceptable level of wear and tear is likely to incur extra charges. Likewise with mileage that has exceeded the initial estimate.

Thanks to the numerous discounts and other advantages that are provided by the contract hire (and other similar systems); the UK market for contract hire is particularly healthy, with some finance companies having more than half a million cars under their management. Businesses, and to some extent individuals who are seeking the many benefits of the system are fuelling the level of demand.

The BVRLA or "The British Vehicle Rental and Leasing Association" is the representative body which oversees the industry. Ensuring service standards are kept high within the sectors that include contract hire, leasing and general car rentals, the BVLRA has more than 2.5 million vehicles operating within its membership. Also responsible for raising issues to MP's, especially with regards to the financial side of the industry. Within the industry, there are at least 50 companies that offer major supply with many others operating with less than 1000 vehicles in their fleets. Fleet News (a weekly publication) publishes the annual statistics for the relevant fleets.

As well as large finance companies whose main concerns are affinity car schemes and corporate fleets, there are also a multitude of smaller more independent brokers in operation. Perhaps the most established of these independent brokers is Next Vehicles, who currently supply (mostly to smaller businesses) more than 300,000 vehicles every year. Helping these small companies and private buyers unearth more cost efficient leasing options (by comparing prices across the field) is the main goal of Next Vehicles.

The lessor (Contract Hire Company) retains the ownership of the vehicle at all times. The lessee (company or individual renting the vehicle) at no point becomes the owner of the vehicle being leased.

VAT registered companies are able to claim back 50% of VAT on the finance element of the agreement, making contract hire extremely popular for these companies.

There are many benefits of the Contract Hire system:

Financial/Tax Advantages

  • Easy and accurate budgeting on a monthly basis
  • Off balance sheet
  • Cash flow improvement
  • Capital expenditure kept to a minimum
  • Capital budgets protected
  • Interest rates are fixed
  • Allowable against taxable income (subject to the "half the excess rule" partial disallowance
  • Can recover VAT on monthly rentals
  • Risk of depreciation negated – finance company responsible for vehicle disposal
  • If the car has private usage, then 50% of VAT (finance element) recoverable. If a business only vehicle, 100% recoverable. Service element VAT recoverable if maintenance included in contract.

Running of Vehicle

  • Vehicle disposal not an issue
  • Lower admin costs
  • Support and advice throughout duration of contract
  • For the duration of the contract road fund licence supplied (vehicle excise duty paid)
  • Maintenance packages – optional
  • Breakdown cover – optional
  • Replacement vehicle cover – optional
  • GAP insurance – Optional
  • If vehicle is declared a write-off by insurance company, GAP insurance provides cover for any shortfall between insurance value and any outstanding finance

Personal Contract Purchase

Personal Contract Purchase or PCP is simply a way for people to finance a vehicle. It is made easy in numerous ways and often proves to be more cost effective than other financial facilities, with more affordable monthly payments.

Just as with contract hire it is possible to also include a comprehensive maintenance package, which might cover things such as tyre replacement, regular services and breakdown recovery.

Again, in parallel with Contract Hire, there is a set monthly fee to pay which provides you with a new car to drive. The length of the PCP is usually somewhere in the region of 2 to 5 years. The finance company in question remains the legal owner of the car at all times during the contract. Once the contract reaches its conclusion there are 2 basic options available.

1. At the beginning of the contract, a price (based on the residual value of the vehicle) will have been agreed between both parties – at the end of the contract, you can now choose to buy the car at that price (known as the Guaranteed Future Value) in addition to the final payment due.

2. However, if you believe the car has now decreased in value to the point that it's worth less than the agreed price, you can return it to the finance company without either taking the vehicle on yourself or having to find a way to dispose of it.

Facts about Personal Contract Purchase

Is the PCP just for me or can my employers be included too?

The PCP is solely for you, the private individual. Employers are not permitted to be involved in the arrangement in any way. You may be liable for Benefit in Kind Tax if your employers have been part of the arrangement.

Ownership of the Vehicle in relation to the PCP

The vehicle is fully owned by the finance company. However, the car will be registered in the driver's name and the driver fully responsible for the Road Fund Licence for each year of the agreement after the first.

What about VAT?

The only VAT due during the course of the PCP will be that accrued on any of the opted for maintenance packages.

Will I need to pay a deposit?

Yes – in most cases you will be asked for around 3 months payments up front.

Are there different payment options?

Usually there are 3 different options:

Terminal Pause – If your PCP has been agreed over 3 years (36 months), 3 months will be due as a deposit as an initial outlay. There will then be 33 monthly payments which start immediately after the first payment. At the tail end of the contract, there will be 2 months with nothing to pay.

Spread Rentals – This is perhaps the most common option. You still pay the 3 months in advance followed by another 35 payments. However, with this option the monthly payments are lower and so perhaps more manageable.

Enhanced Deposit – The aim here is to lower your monthly payments. This can be achieved by paying a larger advanced deposit or even trading in a vehicle as part exchange to contribute to the advance payment. Your advanced payment should still equal or exceed the equivalent of 3 monthly rentals. This will be followed by 35 lower monthly payments.

What do the optional maintenance packages include?

This would typically include all routine services and maintenance, including tyres, batteries and exhausts. There is no limit on these. It is important to remember that all maintenance should be completed in line with the manufacturer's handbook.

Who is responsible for vehicle insurance?

All vehicle insurances are the sole responsibility of the driver.

What about mileage issues?

If at the end of the contract, the mileage quota has been exceeded, the driver will be fully liable for an excess charge.

The predicted annual mileage is calculated and is a fundamental part of the PCP agreement. It contributes to the resale price (or Guaranteed Future Value) of the vehicle in question. If estimated mileage has been exceeded a charge will be due on every mile over the agreed amount.

If an optional maintenance package is included, the PPM (Pence per Mile) amount is calculated using two factors.

Depreciation – It goes without saying that any additional mileage at the end of the PCP will have a direct effect on the future sale value of the vehicle. As with any car, the general rule is that the more miles there are on the clock, the less the car will be worth when sold.

Maintenance – If mileage has been exceeded, it is reasonable to expect that more services, such as more tyres and perhaps more exhausts will have been required, therefore increasing the amount of outlay over and above the agreed maintenance package budget.



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