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3. Contract Purchase / PCP
Available on new and used cars ( with age restrictions) to both private individuals and businesses. For private customers it is commonly reffered to as Personal Contract Purchase or 'PCP'.
The product has become hugely popular in recent years particularly with the increase in the amount of company car drivers who are given the choice of a monthly cash option from their company instead of their company car.
click here if you are taking the cash option
You pay a deposit, you make fixed monthly
payments over an agreed period (usually between 2 and 4 years),
based on your anticipated mileage a minimum Guaranteed Future
Value (GFV) is set. This GFV figure is also the same
as the amount you will still owe at the end of the agreement.
You are effectively only making repayments on the depreciation
of the vehicle.
Due to the relatively large deffered payment the monthly payments are considerably reduced. There is also the added benefit of a GFV to fall back on leaving you with no risk at the end of the agreement. It is possible to settle early in the same way as with Hire Purchase.
Example :
| Car costing £23,995 |
Deposit £7000 |
Funding £16995 over
42 months |
| 42 Repayments of £282.34 |
APR 10.2% |
GFV £9610, based
on 10000 miles* |
Benefits
- Available on both new and used cars (age restrictictions)
- Low Deposits still produce comfortable monthly payments
- Flexible; you can pay the final payment and keep the
vehicle, extend the contract, return the vehicle, part exchange
the vehicle using any equity or sell the vehicle and keep
the equity if it is worth more than the outstanding GFV/Final
payment
- Shorter terms
- The decision to keep the vehicle is left to the end of
contract
- *Any excess mileage charges are usually very fair
- Opportunity to drive younger vehicles changing every
2 or 3 years
- Possible to run a better car for the same monthly payment
- Used Cars enjoy the benefit of a 'lease' like structure
and a car that starts the agreement with the bulk of its
depreciation allready accounted for
Whats the Tax situation for businesses?
- The interest can be offset against tax.
- The vehicle is shown as an asset on your balance sheet
- The vehicle can be 'written down' each year by up to 25% to a maximum of £3000 p.a
- There is no VAT element on the repayments except maintenance contracts
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