Business leasing is a vehicle agreement between a finance company and an established business. Like with a personal lease, you choose a car (or more than one car if leasing for a business fleet), pay the deposit if you have one, agree on a monthly payment and drive away.
The business leasing and finance options are available for a single car or more than one car (fleet).
The four main types of business leasing and finance options are explained below.
Business Contract Hire (BCH)
Business Contract Hire is where a business pays set monthly payments over an agreed period of time. This is in return for an individual car or a fleet.
BCH pays for depreciation of the vehicle. The contract hire company will work out how much the car will be worth at the end of the agreement (guaranteed minimum future value), taking depreciation into account. Monthly payments are determined by the difference between the future value and initial value of the car being split over your lease length.
When the contract ends, the individual car or fleet is simply returned. There will be no further charges, given the vehicle is returned within the agreed mileage and wear and tear guidelines.
You will not be the registered keeper of the vehicle at any point.
Benefits of BCH:
Fixed monthly costs will allow the company to budget
No worries about depreciation and reselling
The vehicle or fleet size and value can be changed at the end of the contract according to the business’ needs
Business Contract Purchase (BCP)
Business Contract Purchase is like BCH, monthly payments cover the depreciation of the vehicle over the lease length. However, at the end of a BCP agreement you also have the option to keep the car.
The options at the end of the BCP agreement are:
Buy car - you will have to make a final payment known as a balloon payment (future value figure) then the car is legally yours
Part exchange for a new car or fleet – if the car/cars are worth more than the guaranteed minimum future value, the difference can go towards a deposit or a new car
Benefits of BCP:
You have several options at the end of the contract
Fixed payments mean no fluctuations in monthly costs
You can return the car without worrying about reselling
Hire Purchase (HP)
Hire purchase is paying off the value of the car in monthly instalments. Any deposit amount and monthly instalments go towards paying off the entire cost of the car.
You do not own the car until the lease ends. At the end of the Hire Purchase agreement, you are the registered owner of the vehicle.
Benefits of HP:
There are no additional charges for excess mileage or damage to the vehicle
Plan your outgoings in advance
Final payment is smaller than on a BCP agreement
Lease Purchase (LP)
A lease purchase agreement is similar to BCP. The difference is, you will own the car at the end of the deal, once the balloon payment is made. There is no option to return.
The options when the LP ends are:
Keep the vehicle – the balloon payment is made and the car belongs to you