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A Guide To Motor Finance

What is finance lease?

A finance lease is an alternative method of financing vehicle either where contract hire is not suitable, where companies want to minimise the risk of charges at the end of the contract, when companies want the vehicle to appear on their balance sheet, or where the tax advantages of finance lease suit the business better than other methods. Under a finance lease agreement you effectively rent the vehicle for a fixed contract duration with a fixed monthly payment, and a balloon at the end of the contract. At the end of the contract businesses can either sell the vehicle to a third party and retain most of the profits (if the vehicle is sold for more than the balloon payment), or can pay it and operate under a ‘peppercorn agreement’. Businesses can opt to have a higher balloon payment and lower monthly payments or can choose to finance the entire cost of the vehicle with higher monthly payments and have a minimal balloon payment at the end of the contract.

Benefits of finance lease include

  • Minimum Fuss – Whenever you take a new vehicle on a finance lease agreement it will be covered by the manufacturer’s warranty and it will be delivered to you! You can also opt for maintenance packages to help budget a fixed monthly payment with no unexpected maintenance costs.
  • Flexible payments – You can pay a higher amount in the first month in order to reduce monthly payments and help with cash flow. Equally you can choose to spread everything equally across the contracted period. Not only this but a finance lease contract can be settled early and as long the vehicle is sold for the same as/more than the settlement fee, there are no early termination costs.
  • Free Up capital – Due to finance lease not requiring a large initial outlay, it can free up capital for the business. This is particularly helpful for companies that own their fleets and want to free up the cash locked in their vehicle assets.
  • Eco-Friendly – Having access to the latest models that manufacturers offer means that there are equipped with the latest green technologies and can help lower a business’ carbon footprint.
  • Latest Technology – Having the latest technology in vehicles will help ensure that your drivers are comfortable, safe, and that vehicles are fit for purpose (Duty of Care risks).
  • Lower Maintenance Costs – Typically having a new vehicle will mean that you have less unscheduled maintenance issues pop up.

Things to remember:

  • Final Payment – While you don’t have to worry about excess mileage charges or damage recharges, these will affect the resale value of the vehicle. If the vehicle can only be sold for less than the balloon payment then the business will have to cover the difference.
  • Won’t Own The Vehicle – Although the vehicle appears on the business’ balance sheet it will never be owned by them.
  • When Selling The Vehicle – Assuming the vehicle is sold for more than the balloon payment, the business will retain 98% of the proceeds.

What is personal contract hire?

Personal contract hire is also known as ‘leasing’. It’s a method of financing vehicles for private individuals that involves taking a fixed term contract with a chosen mileage limit and having a fixed monthly payment calculated accordingly. Typically contracts range from 2-5 years in duration and once the contract is over you simply return the car back to the finance company without having to pay any kind of settlement figures. Under a personal contract hire agreement you will not own the car. It’s effectively a long-term rental contract in which you pay the depreciation of the car without having to worry about what the car is worth afterwards (‘residual value’. The finance company takes on the risk of the residual value of the vehicle so regardless of crashes in the used car market, you don’t have to worry about being out of pocket.

Benefits of personal contract hire include

  • Hassle Free – Whenever you take a new vehicle on a contract hire agreement you will benefit from road tax being included for the whole contract. Also with it being a new vehicle it will be covered by the manufacturer’s warranty and it will be delivered and collected from you! You can also opt for maintenance packages for a completely hassle free experience.
  • Flexible payments – You can pay a higher amount in the first month in order to reduce monthly payments and help with cash flow. Equally you can choose to spread everything equally across the contracted period.
  • Free Up capital – Due to contract hire not requiring a large initial outlay, it can free up capital for the business. This is particularly helpful for companies that own their fleets and want to free up the cash locked in their vehicle assets.
  • Eco-Friendly – Having access to the latest models that manufacturers offer means that there are equipped with the latest green technologies and can help lower a business’ carbon footprint.
  • Latest Technology – Having the latest technology in vehicles will help ensure that your drivers are comfortable, safe, and that vehicles are fit for purpose (Duty of Care risks).
  • Lower Maintenance Costs – Typically having a new vehicle will mean that you have less unscheduled maintenance issues pop up.

Things to remember:

  • Excess Mileage – Try to estimate a reasonably accurate mileage for your contract. If you exceed this mileage you will have to pay what’s known as an ‘excess mileage charge’ to cover the additional depreciation.
  • Won’t Own The Vehicle – Although this can vary between finance companies, typically there is no option to buy the vehicle at the end of the contract.
  • Maintenance & Damage – BVRLA members use a specific wear and tear policy as part of their membership. This describes what is allowed and what would be charged for. You also need to make sure that maintenance and servicing is kept up to date.
  • Fixed Contract Duration – You are contracted into a fixed period. Some finance companies allow early terminations which will cost a minimum of 50% of the remaining rentals. Equally you need to make sure that you have arrangements in place before the end of the contract.

We want all of our customers to be able to make an informed decision on all the available finance options available but please bear in mind GB Car Leasing no longer offers personal contract purchase agreements.

What is personal contract purchase?

A personal contract purchase agreement is a method of financing a new vehicle purchase for private individuals. They have a final balloon payment at the end of the contract which means that the monthly payments are lower than if the whole cost of the vehicle was spread across the monthly payments. Often the balloon payment is a ‘guaranteed future value’ from the finance company which means that the vehicle can just be handed back without the need to settle the final payment. This varies between finance providers however.

Benefits of personal contract purchase include

  • Eco-Friendly – Having access to the latest models that manufacturers offer means that there are equipped with the latest green technologies and can help lower a business’ carbon footprint.
  • Latest Technology – Having the latest technology in vehicles will help ensure that your drivers are comfortable, safe, and that vehicles are fit for purpose (Duty of Care risks).
  • Lower Maintenance Costs – Typically having a new vehicle will mean that you have less unscheduled maintenance issues pop up.

Things to remember:

  • Final Payment – This isn’t always a guaranteed future value and sometimes this MUST be settled by the individual in order to satisfy the contract.
  • The Individual Takes Ownership Of The Vehicle – This means that responsibilities for RFL, maintenance and duty of care fall solely at the feet of the business.
  • Insurance – The vehicle must be covered by fully comprehensive insurance until the contract is settled.

What is contract hire?

Contract hire is also known as ‘leasing’. It’s a method of financing vehicles that involves taking a fixed term contract with a chosen mileage limit and having a fixed monthly payment calculated accordingly. Typically contracts range from 2-5 years in duration and once the contract is over you simply return the car back to the finance company without having to pay any kind of settlement figures.

Under a contract hire agreement you will not own the car. It’s effectively a long-term rental contract in which you pay the depreciation of the car without having to worry about what the car is worth afterwards (‘residual value’. The finance company takes on the risk of the residual value of the vehicle so regardless of crashes in the used car market, you don’t have to worry about being out of pocket.

Benefits of contract hire include

  • Hassle Free – Whenever you take a new vehicle on a contract hire agreement you will benefit from road tax being included for the whole contract. Also with it being a new vehicle it will be covered by the manufacturer’s warranty and it will be delivered and collected from you! You can also opt for maintenance packages for a completely hassle free experience.
  • Flexible payments – You can pay a higher amount in the first month in order to reduce monthly payments and help with cash flow. Equally you can choose to spread everything equally across the contracted period.
  • Free Up capital – Due to contract hire not requiring a large initial outlay, it can free up capital for the business. This is particularly helpful for companies that own their fleets and want to free up the cash locked in their vehicle assets.
  • Eco-Friendly – Having access to the latest models that manufacturers offer means that there are equipped with the latest green technologies and can help lower a business’ carbon footprint.
  • Latest Technology – Having the latest technology in vehicles will help ensure that your drivers are comfortable, safe, and that vehicles are fit for purpose (Duty of Care risks).
  • Lower Maintenance Costs – Typically having a new vehicle will mean that you have less unscheduled maintenance issues pop up.

Things to remember:

  • Excess Mileage – Try to estimate a reasonably accurate mileage for your contract. If you exceed this mileage you will have to pay what’s known as an ‘excess mileage charge’ to cover the additional depreciation.
  • Won’t Own The Vehicle – Although this can vary between finance companies, typically there is no option to buy the vehicle at the end of the contract.
  • Maintenance & Damage – BVRLA members use a specific wear and tear policy as part of their membership. This describes what is allowed and what would be charged for. You also need to make sure that maintenance and servicing is kept up to date.
  • Fixed Contract Duration – You are contracted into a fixed period. Some finance companies allow early terminations which will cost a minimum of 50% of the remaining rentals. Equally you need to make sure that you have arrangements in place before the end of the contract.

We want all of our customers to be able to make an informed decision on all the available finance options available but please bear in mind GB Car Leasing no longer offers contract purchase agreements.

What is contract purchase?

A contract purchase agreement is a method of financing a new vehicle purchase for businesses. They have a final balloon payment at the end of the contract which means that the monthly payments are lower than if the whole cost of the vehicle was spread across the monthly payments. Often the balloon payment is a ‘guaranteed future value’ from the finance company which means that the vehicle can just be handed back without the need to settle the final payment. This varies between finance providers however.

Benefits of finance lease include

  • Eco-Friendly – Having access to the latest models that manufacturers offer means that there are equipped with the latest green technologies and can help lower a business’ carbon footprint.
  • Latest Technology – Having the latest technology in vehicles will help ensure that your drivers are comfortable, safe, and that vehicles are fit for purpose (Duty of Care risks).
  • Lower Maintenance Costs – Typically having a new vehicle will mean that you have less unscheduled maintenance issues pop up.

Things to remember:

  • Final Payment – This isn’t always a guaranteed future value and sometimes this MUST be settled by the business in order to satisfy the contract.
  • The Company Takes Ownership Of The Vehicle – This means that responsibilities for RFL, maintenance and duty of care fall solely at the feet of the business.
  • Insurance – The vehicle must be covered by fully comprehensive insurance until the contract is settled.

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