Car Finance Explained

In this simple guide we hope to explain what type of contracts and loans are available. All these are available to non and status finance customers, if you have any further question please feel free to contact us at anytime.

An Important Point . . .

All our car finance is NOT secured on any property, it is secured on the car. However, we are unable to offer car finance with no deposit or finance which clears outstanding finance agreements.

 
Contract Hire

With Contract Hire, in return for a fixed pre-determined stream of rental payments, the finance company supplies the vehicle and takes full responsibility for its depreciation, funding costs and administration. When (as in most cases) a maintenance contract is included, this responsibility is extended to the provision of all servicing and repairs (excluding accident repairs but including tyres, exhausts etc). It typically also covers the Road Fund License and, where specified, replacement vehicles as well. The rental calculation is based on time and mileage, and also the cost of maintenance where this is included in the contract.

So, Contract Hire is about the purchase of a service (not just a vehicle) at fixed pre-determined price - therefore quality of service can matter just as much as price. What’s more, the vehicle stays off the user’s balance sheet and hence should not degrade the user’s credit position as much as if it were on-balance sheet.

Since August 1995 the finance company has been able to reclaim the VAT levied on the price paid for the new vehicle, and these benefits are reflected in lower monthly rentals. In other words the rentals can be repaid at this net figure plus VAT, so you do not have to pay all the VAT in the purchase price of the car.

The rentals themselves carry VAT. 100% of this VAT can be reclaimed by the hirer (assuming he/she is VAT registered) if the vehicle is used solely for business, and 50% if there is an element of private use, although this does not apply to commercial vehicles, where in all cases 100% is recoverable. Where maintenance is included, 100% of the VAT levied on maintenance can be reclaimed; the finance company will specify how much this element is.

And yes all VAT is at 15%

Personal Contract Hire

As per Contract Hire, but tailored for private individuals not registered for VAT

Contract Purchase

This is a conditional sale agreement, structured as the user contracting to purchase the vehicle over a set period of time. It typically incorporates full maintenance (like Contract Hire). There is usually a final balloon payment (i.e. a single large final payment), after which legal ownership passes to the user. In practice most users do not make this final payment, opting instead to return the vehicle to the finance company, thereby avoiding the burden of disposal. The repayment figures and the maintenance element are based on time and mileage. Like other purchasing schemes the vehicle is purchased inclusive of VAT and repayments do not carry VAT except for the maintenance element, of which 100% is recoverable.

Hire Purchase

(This is also known as Conditional Sale.)

A fixed cost, fixed period loan to support purchase. The user is effectively the owner but title does not pass until the loan is fully repaid. It is on-balance sheet for the user. As they constitute loan repayments monthly payments do not carry VAT. The capital cost can be written down for tax purposes on a reducing balance basis with up to £3,000 capital allowances available against taxable profits per annum. Interest (usually without limit) is also allowed against tax. These allowances may be restricted if there is an element of private use.

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