Car Leasing, Contract Hire, Lease Purchase, and Car Finance - What’s the difference?

Last Updated: 20th Oct 2016
Car Leasing, Contract Hire, Lease Purchase, and Car Finance - What’s the difference?

10th April 2013

With so many different types of car lease, car finance and company car hire around, it can often become daunting and more than a little confusing when we simply want to pay monthly for a car.

Here at Hippo, we know the car leasing business inside and out, and we’re happy to not only help by phone or email, but just in case it’s midnight and you need to know right then, we’ve compiled a short description of each type of car lease, along with its benefits, and who it’s most suited for too.

The best initial question to probably ask yourself is…Will you be using your vehicle for business or pleasure (private use)? This is often to do with VAT options, car value depreciation, additional extras, as well as whether you’d be looking to keep the car in the long run too.  We’ve split it into two sections for you, Personal or Business.

Personal

Drive Wise (PCP)

Best for?

Private individuals who want a hassle free and cost effective way to finance and maintain a vehicle, or want to drive a more expensive car than they would ordinarily buy outright, and would  like to decide later whether to keep it or hand it back.

Details

With this type of lease, it depends on how well the car holds its value, to determine how low the payments will be. A funding agreement & fixed monthly payments are calculated based on the vehicle’s expected devaluation – the difference between the resale value at the end of the agreement & the original purchase price, as well as age and mileage. Part of the vehicles capital cost may be deferred into a Balloon Payment at the end of the agreement, which equates to the anticipated market value of the vehicle at the end of the agreed leasing period.

The Benefits

  • Road fund licence included
  • Optional ownership
  • Low initial outlay
  • Flexible deposits
  • Fixed monthly payments

Hire Purchase 

Best For?

Those who can’t afford the initial outlay for their vehicle so pay monthly for it with the help of a finance company, until they have paid it off.

Details

You enter into an agreement with a finance company over a fixed period with fixed instalments, which is secured against the car being bought. Upon payment of the final instalment the vehicle becomes yours. A balloon payment can be incorporated as can low deposits.

The Benefits:

  • Alternative funding line to bank overdrafts.
  • Ownership at the end of the contract
  • Low initial outlay
  • Flexible contract
  • Interest reclaimable against tax
  • Writing down allowance
  • Fixed monthly cost
  • Business capital not tied up in a depreciating asset

Lease Purchase

Best For?

Private individuals, (& Non-VAT registered companies),that want eventual ownership of the vehicle.

Details

Pay a deposit that suits your budget, then repay the remaining balance over an agreed period, eventually obtaining ownership when all payments, including the purchase payment, have been made. A Balloon Payment may be incorporated, which adds up to the predicted market value of the vehicle at the end of the agreement period.

Lease Purchase Benefits:

  • Fixed monthly cost
  • Ownership at the end of the lease
  • Flexible contract
  • Balloon Payment
  • Low initial outlay
  • Business capital not tied up in a depreciating asset
  • Finance not subject to VAT
  • Interest reclaimable against tax
  • Writing down allowance

Business Customers

Contract Hire

Best For?

VAT-registered, and non VAT-registered, companies that want minimum outlay and maximum control of costs.

Details - Contract Hire offers a fixed monthly cost enabling businesses to budget and forecast accurately. It’s a VAT-beneficial financing package; all risks are covered by one systematic rental payment, and include costs of depreciation and disposal, for an agreed period of time and mileage. Additional options like roadside rescue, maintenance and relief vehicles can be added and changed to the monthly agreement.

Contract Hire Benefits:

  • Up to 100% tax
  • Low initial outlay
  • Flexible contracts
  • No residual risk
  • No disposal issues
  • Optional relief vehicle
  • Capital not tied up in a depreciating asset
  • Off-balance sheet borrowing/accounting
  • Fixed cost and optional maintenance
  • VAT on rentals reclaimable

 Finance Lease

Best For?

VAT-registered companies who want to handle the administration of their vehicles, and have the asset shown on their balance sheet.

Details

A flexible and tax efficient option where you can choose to pay the entire cost over the agreed lease period, with an interest charge, or pay lower monthly payments during the lease period with a final balloon payment based on the predicted resale value of the vehicle.

Finance Lease Benefits:

  • Ownership at the end of the contract
  • Fixed monthly costs
  • Flexible contracts
  • Low initial outlay
  • Business capital not tied up in a depreciating asset
  • VAT on rentals reclaimable

Contract Purchase

Who For?

For companies who would like the option to purchase their high-value vehicles at the end of the term, but want to avoid any depreciation risks.

Details

Fixed monthly installments with the asset being shown on the company balance sheet, and you can either preserve ownership at the end of the contract or hand the vehicle back.

Contract Purchase Benefits:

  • Low initial outlay
  • Eventual ownership
  • No residual risk
  • Interest charges claimable against tax
  • More capital to invest in your business
  • Flexible contract
  • Optional final payment
  • Rentals allowable against tax
  • Writing down allowance
  • Fixed monthly costs
  • Optional maintenance package
  • Optional relief vehicle

Lease Purchase

Best For?

Private individuals, (& Non-VAT registered companies),that want eventual ownership of the vehicle.

Details

Pay a deposit that suits your budget, then repay the remaining balance over an agreed period, eventually obtaining ownership when all payments, including the purchase payment, have been made. A Balloon Payment may be incorporated, which adds up to the predicted market value of the vehicle at the end of the agreement period.

Lease Purchase Benefits:

  • Fixed monthly cost
  • Ownership at the end of the lease
  • Flexible contract
  • Balloon Payment
  • Low initial outlay
  • Business capital not tied up in a depreciating asset
  • Finance not subject to VAT
  • Interest reclaimable against tax
  • Writing down allowance

We hope we have helped to answer all of your leasing questions. If you would like any more advice, or would like to enquire about your personal or business car leasing needs, we are more than happy to help.

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