If you need to use a car for your business, finance could provide the ideal solution. But, business customers will find a vast range of options and providers when it comes to leasing a company car – picking apart the information can be a challenge.
Today, we’re going to tell you everything you need to know about business leasing for your company’s vehicles.
What Is Business Car Finance?
Also known as business contract hire deals, business car leasing enables you to drive a new model every few years for work purposes. You pay a fixed monthly price for the vehicle and then hand it back or purchase it at the end of the term.
You can specify how many miles you intend to drive each year and take out the agreement for up to 4 years. It even enables you to hire a fleet of cars for your company.
How Can I Get Business Car Finance?
Business car leasing is simple to apply for online. All you need is details of your business, your company director’s information, and your business bank details.
Start-up companies may need to provide additional details such as three-month business bank statements, management accounts, and possibly a director’s guarantee to secure payments.
You may have to undergo a credit check to ensure you can keep up with payments, and there is a possibility this may affect your monthly repayments.
How Does Business Vehicle Finance Work?
Business car leasing is an affordable way to get a vehicle purely for work purposes. A business lease is regulated by the Financial Conduct Authority and is secure. So how does business car leasing work?
Also known as business contract hire, you pay fixed monthly payments and can take out the contract for up to 4 years. You then have use of a company car.
Once the contract comes to an end, depending on the terms of the agreement, you can hand the car back or upgrade to a newer model. If you are a larger business, you have the option to lease a whole fleet of vehicles, making it a cost-effective way for your company to meet its requirements.
When going to a financer to lease a vehicle, you can decide on the make and model of the car you want for your needs, your monthly budget, deposit, length of the agreement, and the number of miles you believe you will use in a year. All of these factors will go towards building a quote.
There are also benefits to business car leasing. For example, if your business is VAT-registered and the car is only used for work purposes, you can claim 50% of the VAT on the monthly lease payments and 100% VAT in the maintenance package.
Don’t worry about your ability to get credit or funding from investors due to leasing a car; the payments are classed as “off-balance-sheet”. This means payments for a business car lease don’t show as an asset or liability on your company’s balance sheet.
Types of Financing Options for Commercial Vehicles
There are various options for contract hire, so it is important to do some research when deciding which option is best for your business car leasing needs.
Personal contract purchase (PCP)
How does PCP work?
PCP is fundamentally a loan that helps you get a vehicle for work. You need to pay a deposit which is normally set at 10% of the car’s price. Remember, your monthly payments will be lower the larger your deposit is.
The financer will set what is known as a “balloon payment” – this is the final payment you will make should you want to keep the vehicle. Your monthly payments will cover the difference between this and the amount you have borrowed.
How much does PCP cost?
If the vehicle you agree to purchase costs £20,000 and the term is for three years, the financer will decide how much the car will be worth at the end of the three years.
If they decide it will be worth £8,000 at the end and ask you for a 10% deposit of £2,000, you will be agreeing to take out a loan for £18,000. You will pay interest on that amount but only pay back £10,000.
If you want to purchase the car at the end of the term, the “balloon payment” will be £8,000.
The pros and cons of PCP
Pros:
- You can drive a brand new car for your business needs.
- You are the registered keeper of the vehicle for the term of the contract.
- You have control over the amount of deposit you wish to pay.
- You can ensure your monthly payments fit your budget.
- You have the opportunity to purchase the car at the end of the contract.
- Maintenance costs are often included with business leasing.
Cons:
- You need to pay a deposit; no-deposit deals are rare.
- You don’t own the car in the end unless you want to pay the larger balloon payment at the end of the term.
Hire purchase (HP)
How does HP work?
This agreement allows you to hire a new or used car for your business needs with the option of buying it at the end of the contract. The vehicle is owned by the finance company that pays the dealer on your behalf.
In the same way personal car leasing works, you will borrow the amount the car is worth and pay off that total amount. After the final payment is made, you will own the vehicle. You will need to put down a deposit, typically around 10% of the car’s value.
It may be easier to be accepted because the finance company secures the loan by using the ownership of the car against the payments. This means if you can’t pay, the car can be seized.
How much does HP cost?
If you are purchasing a car valued at £14,000 and putting down a deposit of 10%, in this case, £1,400, you will borrow the amount outstanding, including a set interest rate. Your monthly payments will depend on the interest rate offered. For example, if the interest is set at 5% APR over three years, your fixed monthly costs will be £378.
The pros and cons of HP
Pros:
- You can own the car at the end of the agreement.
- It is easier to apply for than other options.
Cons:
- The car can be seized if you don’t keep up with repayments.
- The APR may be high depending on your credit rating.
Do I Qualify for Business Car Finance?
To qualify for business contract hire, you need to bear in mind what you will be using your car for and have all of your details ready to build a quote.
You need to be able to provide details of your business, what you are going to use the car for, how long you need it, what your annual mileage will be and, your business bank details.
You also need to be prepared to be asked to provide further information such as bank statements or details of a guarantor to cover your payments should anything happen.
Here’s how to qualify for the main types of business car leasing:
Closed-end business leasing
To qualify for this type of business contract hire, your finance provider must agree to take on the vehicle’s depreciation at the end of the term.
Conditions of this contract tend to be less flexible, and you must stick to the annual mileage you agreed to in the contract and ensure the car is returned in tip-top condition.
You may be charged if the car is not returned in a satisfactory condition, including excess damage charges or extra mileage fees.
Open-end business car leasing
To qualify for this type of business lease, you agree to take on the car’s depreciation above what would be expected at the end of the term.
The conditions of this business car leasing contract are more flexible. Car leasing payments cover the car’s depreciation over time, so it tends to be a cheaper option.
How to Apply for Business Car Finance
The beauty of business car leasing is that you can apply for it entirely online. Firstly search for a car that suits your business needs and consider your monthly finances to work out if it fits within your budget.
Next, you need to determine how much initial rental you can afford. This will affect your monthly repayments, so consider carefully. Think about how long you want the car for and how many miles you think you will do in a year, then begin browsing deals.
You may need to undergo a credit check for a business lease so the lender can ensure you can keep up the repayments. This is standard practice when applying for any kind of finance, including personal car leasing.
Finally, once you have found a deal that suits your business needs and budget, all you need to do is sign your contract and arrange the delivery of your new car. You are fully covered by the Financial Conduct Authority.
Types of Business Vehicles You Can Get With Financing
With business leasing, you can get brand-new models or used cars. Whether you need just a single car or a whole fleet of vans for each of your workers, business leasing can cover your company’s needs.
Can I Get Financing for Business Vehicles If I Have a Bad Credit Rating?
There are options if you have a poor credit rating.
- Captive financing: This is financing organised directly through the manufacturer and kept “in house”. This is not always available for used cars.
- Dealer-arranged finance: This is where the dealer works with different lenders to get several loan options. This is better for those with a fair credit rating as information may be shared.
- Bank or credit unions: This is similar to other loans; you apply through a bank and may receive pre-approval from them that you can take to a dealership to get a deal on a company car in principle.
- Online lenders: This is a tricky one because the interest rates vary hugely, and you must be aware of unknown companies. You may be asked to provide a co-signer, increase your deposit, or choose a cheaper car to keep costs down.
Always be aware that applying for a business lease on a car will impact your credit rating, and missing payments may result in the vehicle being repossessed.
Who Offers Business Car Finance?
To apply for car leasing, you can go directly to the dealership you are purchasing from. Some online lenders and brokers have good deals, so it is best to shop around to see what suits your needs. Some brokers will offer loans for those with a tarnished credit history but be wary of high APR.
How to Compare Business Car Finance Options
Comparing business leasing options is crucial – you’ll need to find one that meets your company’s needs and budget. It’s best to research a range of providers online and compare their key features and benefits before coming to a decision. You could also get in touch with a broker if you need more help comparing your various options.
Final Thoughts
Although it may seem complicated, business car leasing and contract hire options are varied and flexible, meaning there is a great deal out there for you and your business needs.
FAQs
What makes a business contract hire cheaper than a personal contract hire?
You can claim back 50% of the VAT on your monthly payments and 100% of the maintenance agreements with business contract hire. This is not the case with personal contract hire. Maintenance costs are often included with a business car lease, too.
Do you pay VAT on a business car lease?
No, you only pay VAT if you take out a personal agreement.
Can I get out of a hire purchase agreement?
The contract must be terminated in writing, and you must return the car. Check with your provider before signing a contract.
How soon can I receive a business car loan?
You can generally expect to receive funds within three business days, but it is best to check with your provider.