Leasing is becoming an increasingly popular option for business in the UK. There are three main types of contract you should consider: contract hire, contract purchase, and lease purchase. All of these have their own set of advantages and disadvantages, so it’s important to see which one is right for your specific circumstances.
Contract hire is an agreement where the customer pays for the use of a vehicle over a fixed monthly installment plan. This is also known as an operating lease, and is considered the most popular kind of leasing option. It’s advantageous to small businesses because there’s no large capital outlay and you can reclaim the VAT on both maintenance and finance costs. During the course of the contract, the ownership remains with the leasing company so this vehicle will be classed as an “off balance sheet” item. If you want to terminate the contract ahead of time, though, you’ll most likely have to pay a significant fee.
A contract purchase works similar to contract hire. However, at the end of the contract, you have the option to purchase the vehicle from the lender at a previously agreed price rather than just simply return it. This option is ideal for businesses who may wish to keep the vehicle as an asset at the end of the contract. You’ll still benefit from the ability to pay for the vehicle in much smaller, more manageable monthly payments. This kind of vehicle will be classed as “on balance sheet” item, which means you can claim back capital allowances.
Finally, a lease purchase allows customers to pay an initial deposit on the vehicle while paying the rest of the value over a long-term plan. Once you’ve paid off all the costs, the van automatically becomes your property. This is similar to a contract purchase, though you no longer have the option of returning the vehicle to the lender at the end of the contract. Instead, you’ll be obliged to pay the final balloon payment amount. This is the preferred option if your business is definitely interested in keeping the vehicle as an asset at the end of the contract. Again with this contract the vehicle must be shown as an ‘on balance sheet’ item.
Many lenders also offer a full manufacturers warranty as well breakdown cover included in their monthly rates. Take a look at all of the options available to you and see which one is the best fit for your business.