When it comes to selecting a finance type for your business, finding which is best suited can get confusing quickly. Firstly, it’s important to know at Toomey Lease we offer 3 distinct types of financing solutions: Business Contract Hire, Contract Purchase, and Finance Lease. Each has different advantages, so being informed is important when trying to make the right decision for your business.

Business Contract Hire

Perhaps the most popular leasing option is Business Contract Hire (BCH), which is a lease period consisting of a fixed monthly payment between 2 and 4 years. How does a Business Contract Hire deal work? Well, the monthly rental charge considers a multitude of factors including:  

  • Cost of the vehicle 
  • Predicted resale value 
  • Contract period  
  • Anticipated mileage
  • Service and maintenance costs 
  • Any additional services (e.g.) relief vehicles
Benefits of Business Contract Hire

BCH has many advantages a business can capitalize on, such as the low initial cost and consistent monthly installments having a consistent monthly payment for your fleet means you’re able to plan your budget efficiently with no surprise costs, such as maintenance, affecting your business’s cash flow.

Additionally, when you lease a vehicle through BCH you can also claim back up to 100% of the VAT back. Of course, this is only if the vehicle is strictly used for business purposes. In a situation where the vehicle is used in both personal and business circumstances then less VAT will be claimable. (Up to 50% of the VAT)

Also, when you lease through BCH your business does not have to worry about the depreciation of the car or van because, at the end of your finance agreement, we will take care of the ‘end-of-life cost’. This also means you can keep your fleet stocked with relatively new vehicles as they are replenished every 2-4 years. 

To find out more about BCH Click Here

 

Contract Purchase

A contract purchase package has similarities to BCH, however, with the contract purchase the option to purchase the vehicle(s) at the end of the contract is included. This can be achieved by paying a ‘balloon’ payment whereby ownership of the vehicle is passed to you. It’s important to note that only the service element of the monthly payment is liable to VAT. Making this a more attractive option for companies that are zero-rated for VAT purposes. 

Benefits of Contract Purchase

Similarly, to BCH, when leasing through contract purchase your business has the advantage of fixed monthly payments allowing your business to allocate sufficient cash flow each month.

Unlike BCH, you have the option to buy your vehicle by paying the balloon figure which is agreed upon at the beginning of the contract. This allows you to take ownership of the asset and it will appear on your balance sheet.

However, the great thing about contract purchase is that an ‘option to purchase’ amendment can be included whereby we will agree to purchase the vehicle for the final balloon figure. Ultimately, this gives you a great deal of flexibility, allowing you to either take ownership of the vehicle if you so wish. Or allow us to purchase and return the vehicle, this will relieve you of the responsibility of disposing of the vehicle.

Finance Lease

A finance lease (sometimes known as hire purchase) is for business owners who would like to fully own their vehicles. Our Finance lease will show the vehicles on your balance sheet and once the contract length is complete you will own the vehicle. Unlike contract purchase financing, you will not have the option to allow us to purchase the vehicle for a balloon payment. As a result, payments for this finance option may be higher as you are paying off the full value of the vehicle.

Benefits of Finance Leasing

Of course, the key benefit of this finance type is you can get the vehicle you want to own straight away without having to allocate a significant amount of capital.

However, vehicles are in general a depreciating asset so when it comes to disposing of the vehicle you could lose money in the long term. Ultimately, having a finance lease contract places the risk and rewards, of owning and disposing a vehicle on your business.

Once again, a key benefit is having regular monthly payments which you can plan for. Also, because you have full ownership of the vehicle you can carry out any desired modifications needed.

Still Not Sure?

Having comprehensive knowledge and understanding of the finance types available is so important when making key business decisions about your fleet. If you would like more information on the types of finance available, please CLICK HERE 

If you would like any assistance or advice on the best finance option for you please complete the form below, and we will happily help you.

 

Interested for more information?