Car Finance what you need to know!
For a young or first time driver it's important to get the right advice and the right start for your borrowing career. One way for you to do this is to consult an independent car finance broker who offer a full range of financial products. An Independent Finance Advisor will discuss the different finance options available to you and they will help you decide which plan suits you best.
It is very important to establish a good credit rating as early as possible but dont get a credit card and spend on it just to achieve this rating, with a parent or guardian as guarantor where necessary, an independent car finance company can help you on the road to establishing a credit history which will be a great start for your credit rating. They will have a full panel of lenders and your loan will be arranged with the best possible lender depending on your circumstances.
We would urge you to be careful of applying to too many different places as this can damage your credit rating by placing multiple searches against your name.
In today's uncertain market it is good to know that you can still get impartial advice not just about finance but also on that first car you've been dreaming of.
Contract Hire - Suitable for most businesses, almost half of the UK fleet market uses this option....
Personal Contract Hire - Personal Contract Hire is popular with individuals and employers who want to substitute a cash allowance for the traditional benefit of a company car....
Contract Purchase - Contract Purchase is mostly suitable for businesses where reclaiming VAT is not required....
Lease Purchase/Hire Purchase - If you wish to keep vehicles as a business asset....
Personal Lease Purchase/ Hire Purchase - This type of agreement is available to private individuals....
Finance Lease - An alternative to Contract Hire where the hirer has the option of paying back the capital cost of the vehicle over a longer period....
There are very few companies who can get you the car you really want but there are vehicle sourcing companies who can offer independent advice on ways to get that dream car.
The best vehicle sourcing companies have a nationwide client base and pride themselves on the standard of vehicles they supply. They know that word of mouth is the best form of advertising. If they don't get it right you won't recommend them to your friends and family and in fact you'll be doing the exact opposite and no-one would expect anything less. They will endeavour to excel customer expectations both in quality and price.
Without the overheads of a traditional car dealership a vehicle sourcing company can find the right car for you at the right price or just ensure that you aren't paying too much for that all important first step on your motoring career. They are able to supply any make and model at prices which simply cannot be matched in the market place.
With access to over 4,000 car dealers, motor traders and vehicle re-marketing specialists they can source a vehicle cheaper than you thought possible.
All vehicles are supplied with full providence and HPI certificate so you can be sure of your new cars history and that no nasty surprises are waiting to be found. The best of these companies also offer part exchange and national home delivery.
Conract Hire Car Leasing
Suitable for most businesses, almost half of the UK fleet market uses this option. Contract Hire is available for new or used vehicles, the latter up to a maximum of 12 months old. Technically this is a type of Operating Lease.
Many businesses find that regular fixed monthly rentals help with budgeting, cash flow and forecasting, and it leaves your capital free for other purposes. Fleet management services can be used, thus reducing your administration time and costs. VAT registered businesses can claim 50% of the VAT element on the monthly rental and 100% of the VAT on any maintenance charges included. In the case of vans, if a VAT registered business can show that a vehicle is never used for private mileage, up to 100% of the VAT on the rental element can be reclaimed in addition to the all VAT on maintenance charges (for VAT registered businesses only). Up to 100% of the net rental can be claimed against taxable profits, but your accountant can determine what proportion, if any, will be deducted for private mileage.
Contract Hire is often referred to as 'off books' because the vehicle does not appear on your balance sheet, depreciation costs are calculated by the finance company in determining the monthly rental. This also helps with forecasting tax liability. For businesses with larger fleets there are economies of scale to be had.
This type of contract includes Road Fund License for the duration of the contract and manufacturer's warranties and benefits apply. No ownership is involved and there is a minimum initial outlay (usually 3 months payments). Quotations from Newlease are given exclusive of VAT. Contracts are for a fixed period of time (usually between 24 and 60 months) for a fixed rental which is based on the value of the vehicle, the annual mileage and the residual value (the higher the mileage the lower the residual value and therefore the higher the monthly rental). There is a pence per mile surcharge on any mileage in excess of what is agreed for the overall duration of the contract, so it is important to be accurate in estimating your annual mileage (for multiple vehicles it is sometimes possible to pool the mileage). Contract Hire can include maintenance to cover servicing and other costs if you wish. Naturally, these are more expensive and many people prefer to cover this with local servicing facilities. The vehicle is returned at the end of the contract.
If you are supplying vehicles to employees it is worth while keeping in mind the user will pay a benefit in kind tax based on the CO2 output of the vehicle (see our downloadable CO2 Calculator), the P11D value plus any extras, and the rate of tax that the employee pays. The purpose of the legislation behind these regulations is to encourage everyone to drive cars with lower CO2 emissions. The greener, the better.
Personal Contract Hire
Personal Contract Hire is popular with individuals and employers who want to substitute a cash allowance for the traditional benefit of a company car, and in many ways this is a personal version of Contract Hire. It is also used as an alternative to buying by private individuals with no connection to business use. These contracts can be with, or without, maintenance and the standard version normally includes the first year's Vehicle Excise Duty, although one can specify a longer period. Prices quoted include VAT (of course, none is reclaimable) and consequently tend to look more expensive than Contract Hire. The agreement is not with the business but with the private person.
In a company car opt out scheme the employer relinquishes control over the type and age of vehicles used by employees on company business. In principle, employees are entitled to choose any mode of transport they choose and can use all the cash allowance from their employer, a portion of it, or make their own contribution to purchase a more expensive vehicle than the allowance would otherwise allow. There are also debatable questions relating to liability if an accident should occur to an employee and/or vehicle or third party while on company business in a vehicle under this type of contract in an opt out scheme.
In deciding on the amount to be offered in such a scheme a number of considerations should be factored into the equation. The first thing to keep in mind is that any cash paid to an employee will be liable in full to income tax at their personal tax rate and this will considerably reduce the amount available for that person to acquire a vehicle. Secondly, it is important to get an idea of the insurance costs involved for the user, remembering that business use may need to be included in the policy, since an omission of that information could invalidate any claim later. Specifying use for business will almost certainly increase the cost. Lastly, the annual cost of fuel for business use and Graduated Vehicle Excise Duty (Road Tax) will also need to be taken into account. On the other side of the calculation, the cost of tax which an employee using a company vehicle would otherwise have paid on CO2 output as a benefit in kind tax can be offset against the above costs. Depending on the type of vehicle this could be a sizeable amount annually.
From the employers point of view there may be cost savings on administration and the reduction of possible liabilities on the business.
Contract Purchase is mostly suitable for businesses where reclaiming VAT is not required. It is made up of fixed monthly payments over a specified term at a fixed rate, and for an agreed mileage. As in a Finance Lease the user may share in any benefits of the disposal of the vehicle, but unlike it, will not bear the risk of any shortfall. At the end of the contract the user has the option of buying the vehicle with a final payment which had been predetermined, as a guaranteed future value at the outset, - or of returning the vehicle. Contracts can include maintenance and Graduated Vehicle Excise Duty (Road Tax). The vehicle is shown on the balance sheet and capital allowances can be claimed. (Please refer to the section on Lease Purchase for a full explanation of how this works)
Personal Contract Purchase
The same as Contract Purchase but where VAT, accounting and taxation considerations are excluded.
About Lease Purchase/Hire Purchase
If you wish to keep vehicles as a business asset and discount the cost over a longer period of time, this can be a good option. Vehicles bought in this way can be shown as an asset on the Balance Sheet of your accounts and not directly in the Profit and Loss Account (as with Contract Hire for example). Because the value and the vehicle depreciates over time, the Inland Revenue allow a percentage of the cost of any capital equipment necessary to operate the business to be 'written down' by an annual percentage (the capital allowance) in order that equipment will be replaced and the productivity of the business maintained. So for example, if a vehicle costs £15,000 and the capital allowance is 25% per annum (subject to a maximum claim of £3000 per annum on cars costing £12,000 or over), then after one year the vehicle will stand on the balance sheet at £12,000 (Written down value - £3000 limit included). In the next year it will be written down again by 25% of £12,000 to £9,000 (Written down value - write down matches £3000 limit). In the third year the full allowance is achieved without the £3000 limitation and the Written down value will be £6,750. In this example, assuming no private use of the vehicle, in the first and second years £3000 per annum would have been allowable against taxable profits and in the third year, £2250. If there is some private use of the vehicle, the percentage of the capital allowance shown in the Profit and Loss accounts the matter will need to be discussed with your accountant. These amounts would appear in your Profit and Loss Accounts in a similar way to other expenses, although shown separately. They have the same proportional effect on the business's tax liability as any other expense item. (For example, for a sole trader with a standard rate of income tax of 22%, the tax saving over 3 years would be £1815.) The interest included in the repayments can also usually be offset against taxable profit. The vehicle never actually reaches zero value and the benefit to your accounts diminishes over time. Nevertheless, if the maths are done carefully with your accountant and then compared with other options, this method can be of benefit in certain circumstances. This can be a matter of fine judgement where more consideration is given to the ongoing utility of the vehicle, how many years service you feel it will yield before it must be replaced and how far you regard it as important to reflect the status of the business with up to date models every three or four years. If you judge that the vehicle can be maintained without excessive maintenance bills for say, eight to ten years because of its track record (more often the case with higher priced vehicles) and that mileage will be modest, there are savings to be made in the longer run. Everyone has heard of cars that have barely shown strain at 100,000 miles and which are a pleasure in themselves to own, so why change them every three years?
After an initial deposit is paid, the balance is repaid monthly, usually over a period of one to four years. Ownership passes to the business when all the payments have been made. It is often possible to pay a larger deposit or final payment in order to lower monthly costs and also negotiate fixed or variable interest rates. In the same way as outright purchase, the price you will pay for the vehicle will include VAT which, in general terms, is not recoverable for cars (there are some exceptions, for example, dual control driving school vehicles). However, in the case of vehicles deemed to be a van or light van and for 100% business use only, all the VAT is paid with the deposit and is reclaimable in full in the current VAT period (applies to VAT registered businesses only). You should check with your accountant what the current rulings are, as definitions of what is and what is not a van or commercial vehicle can be complex. This is where Contract Hire often seems cheaper because in that case the finance company, as the hirer, is able to recover all the VAT on the vehicle and pass the saving on to the end user. The VAT payable on Contract Hire is not on the vehicle but on the rental. Also all the risks of ownership are born by the purchaser.
Personal Lease Purchase/ Hire Purchase
This type of agreement is available to private individuals. Please see the same general terms which will apply - they are in the section on Lease Purchase / Hire Purchase - but without any of the implications for taxation and VAT
An alternative to Contract Hire where the hirer has the option of paying back the capital cost of the vehicle over a longer period. It is particularly suitable for users who may have higher than average annual mileage or where the wear and tear on the vehicle may exceed the normally expected, as acceptable under Contract Hire terms. The hirer takes the risk that there could be a loss on the sale of the vehicle at the end of the contract. If there are any excess proceeds from the sale, the hirer may receive a refund from the finance company. The hirer never assumes ownership. A one off larger balloon payment can be made to reduce the monthly rentals. The hirer may retain the vehicle for a peppercorn (nominal/low) monthly rental. Flexible payment periods can be arranged by agreement. The cost of maintenance and Graduated Vehicle Excise Duty (Road Tax) is born by the lessee.
The accounting and taxation treatment of this type of contract can differ from business to business and you are strongly advised to check how your particular circumstances are affected with your accountant. The same applies to the treatment of VAT. Most of the variations depend on whether your business is a limited company on the one hand, or a partnership or sole trader on the other and the determination of whether or not the vehicle appears in the balance sheet and is depreciated, or if the lease payments are included in the Profit and Loss accounts as an expense, and consequently how VAT claims are to be treated.