If you’re thinking of purchasing a car (or cars) for your business, then you’re likely to be in the fortunate position of being slightly spoilt for choice in terms of funding possibilities!
Let’s look at some of the issues and options.
To begin with, it’s important to be clear what your own intentions are.
Although many of us use terms such as “purchasing” and “finance” Â to cover all situations, more correctly, we should perhaps be saying “using” and “paying” in general terms.
This isn’t just playing with words, it’s actually important because it cuts to the chase as to how you go about getting a business vehicle, pay for it and importantly, account for it too. Â
For example, do you want to own (eventually) the vehicle concerned or do you simply want a car to drive?
That matters because:
Of course, there are hybrid solutions as well, such as leasing with the option to purchase at the end of the term.
The bottom line is that it’s important to be clear what you’re looking for — eventual ownership of the vehicle or just something to drive? That might play a very big part in you choosing which funding options you progress.
If you really don’t want to eventually own the vehicle or are undecided, these business car finance options may serve a purpose.
There are many variations to choose from but here we’ll consider CH or Contract Hire.
It typically works simply:
You may be able to eliminate the deposit but that will increase your monthly payments.
On the downside, after paying out substantial sums of money over time and taking the P&L hit, you end up without an asset and nothing to show for your expenditure.
Hire Purchase (HP) is a very familiar, simple and eternally popular method of financing a car purchase:
A variation on this is what’s called “Contract Purchase”.
It’s sort of a hybrid between leasing and purchasing:
For many businesses, the idea of spending large sums on a vehicle over time, only to have nothing tangible at the end of it, might seem difficult to take on-board. They might see that as wasted spend and so car finance may be the solution.
On the other hand, lease/rent options do have the attractions of avoiding long-term commitments, as some may allow you to return the vehicle at any time.
In the final analysis, companies may see these pros and cons differently, depending upon their own individual financial position. Your accountant might be able to offer further specific advice here.View more from The Car Finance Hub