Finance Options
The range of finance options available when purchasing a vehicle can be slightly bewildering. APR, Final Payment, GFV’s - these terms can make the whole experience of changing your vehicle a daunting task.
We have detailed some brief explanations of the main ways in which you can finance a vehicle. These notes are perfect for someone who is looking for a jargon free perspective.
If you still have any questions after reading the following pages do not hesitate to call us and we'll try and make things a little clearer.
This is the traditional way of purchasing an item over a period of time, and is favoured by most people who are unable to find the total amount when first making the purchase.
Once having paid an initial deposit the balance of capital and interest accrued are repaid in fixed monthly payments. Repayment periods can run from 1 to 5 years and upon full repayment of the facility, ownership of vehicle rests with you or your business.
All interest charges are allowable against any taxable profits of your business and repayments are not liable for VAT. The vehicle will be considered an asset and shown on your balance sheet. Any vehicles funded by this approach are suitable for writing-down allowances which can be off set against taxable profits, this offers you an effective method of funding for businesses where ownership is a priority.
If you would like a total, fixed cost motoring package then contract hire is the answer for your business. Essentially an operating lease, contract hire can include the provision of maintenance, a relief vehicle, emergency cover, road fund license and vehicle collection and disposal. Because we take care of everything you can concentrate on running your business. All you have to do is to arrange for insurance and pay for fuel.
With a low initial outlay (usually only 3 months' rentals in advance) and fixed monthly rentals, you'll know exactly what your monthly motoring costs will be. So no more unexpected bills or problems and less time spent on administration. At the end of the agreement you simply hand the vehicle back to the Contract Hire company and subject to mileage and condition walk away with nothing more to pay.
Contract hire is also very efficient because the vehicle is treated as "off balance sheet" which improves the gearing ratio in your accounts. The rentals or a proportion of them can be offset against taxable profits for maximum tax efficiency. As with leasing, if your business is VAT registered you can also reclaim 50 % of the VAT on the finance element of the rentals or 100% if the vehicle is used exclusively for business use.
Our Lease Purchase Plan is similar to Hire Purchase but offers businesses greater flexibility.
Very simply, it provides all the advantages associated with Hire Purchase, including being able to claim writing down allowances and offset interest charges against tax, without having to fund the full cost of the vehicle straight away. In addition, by offering an array of rental patterns, our Lease Purchase Plan provides a far more flexible option than a more conventional hire purchase agreement. Yet, it still combines a low initial outlay with the option of ownership at the end of the contract, providing you with a chance to minimise the drain on your business's capital.
Monthly payments may be reduced by the inclusion of a deferred final payment. Known as a 'balloon payment', this lump sum is based upon the estimated residual value of the motor vehicle at the end of the facility. The balloon payment, will be set at a level to reflect the use and anticipated mileage undertaken during the agreement. At Mitsubishi Motors Weston super Mare we believe this is important in allowing you to have sufficient equity to put towards a deposit for your next vehicle.
At the end of the agreement you have a choice of either paying the lump sum and keeping the vehicle, or part exchanging it, using any remaining amount towards a deposit on a replacement vehicle.
4. Personal Contract Purchase - PCP
Branded Mitsubishi Alternatives ‘Protected Value Plan’ many motorists are, turning to a Personal Contract Purchase Plan (PCP) for their motoring needs. Simply because it offers them low monthly payments, plus flexibility to eventually own the car, hand it back, or to take out a new agreement on another vehicle.
PCP is a new flexible finance scheme that lets you drive a new, higher specification vehicle every 2 or 3 years, for a lower monthly payment than traditional finance plans. Aimed at helping people who want to drive a newer, quality car without over-committing themselves, PCP offers many benefits; just think of the lower maintenance and repair costs, plus greater reliability.
PCP is a purchase plan, which, unlike conventional car purchase, can offer a lot more flexibility and a lot more features:
- New and used cars
- Agreement period up to 3 years
- Lower deposits
- Lower monthly payments
PCP - the options
The agreement term normally runs for 2 or 3 years and at the end of this you are given a choice.
- Another car - Simply sell or part exchange the car against a newer one, making the final payment (GFV) through your dealer. If the part exchange price is greater than the Guaranteed Future Value, you can keep the difference, or put it towards a deposit it on your next car.
- Keep the car - pay off the Guaranteed Future Value and it's yours.
- Return the car to the funder - with nothing to pay *, so you won't have any worries about resale values, a benefit few other schemes on the market offer.
The Guaranteed Future Value - What is it?
The Guaranteed Future Value (GFV), calculated at the beginning of your agreement, is based on what the car's estimated value will be at the end of the plan, taking into account its future condition and mileage. This sum is guaranteed* no matter what option you decide to take at the end of the contract.
All funders aim to set GFV's at a level which should provide you with a surplus amount which can be used as a deposit on your next car, or if the car is returned, refunded to you - less sales expenses and commissions.
As you can see PCP can offer you the best of both worlds. Affordable monthly repayments with an ownership option and no worries about resale values.
*Subject to the mileage and condition terms.
