Do you know the difference between contract hire and lease purchase? No? Don’t worry a lot of people don’t and when faced with complex terminology it can be daunting.
Leasing a vehicle should be a straightforward process and here at V4B we like to make that process as simple as possible.
The British Vehicle Rental and Leasing Association (BVRLA) sends us heaps of literature throughout the year. In one of its recent guides it outlined the different options available for financing a vehicle.
Here is some of the information from the guide which hopefully will help you to understand the difference between some of the funding methods available:
CONTRACT HIRE (PCH)
Contract hire is the main type of vehicle leasing. It sees a user hire a car for a set period and pre-determined maximum mileage at fixed monthly rentals. There is no option for the hirer to purchase the vehicle and at the end of the contract it is returned to the leasing company. Maintenance packages can be added which usually include tyres, servicing, oil changes, MOT and breakdown cover.
Personal car plans enable the user to finance the vehicle for a contract period to suit their needs, with the supplier offering an option to guarantee the future value of the vehicle. At the end of the agreement there are three options:
•exchange the car for a new one
•purchase the vehicle outright
•return it without further cost (subject to mileage)
By funding the difference between the purchase price and the residual value at the end of the scheme (rather than the full value of the car), monthly costs can be reduced compared to traditional car loans. Maintenance packages can also be added.
As with contract hire, a finance lease allows the lessee to hire a vehicle for a fixed monthly fee, with the vehicle remaining the property of the leasing company. However, using a finance lease means that the vehicle will appear on the lessee’s balance sheet, with outstanding rentals represented as a liability because the risks and rewards of ownership rest with the lessee.
Contract purchase essentially sees a customer agree to purchase a vehicle via a series of monthly instalments. Ownership passes to the purchaser at the outset or the end of the contract, depending on whether a conditional sale or credit sale agreement is used.
HIRE OR LEASE PURCHASE
Another method of achieving vehicle ownership is hire purchase (also referred to as lease purchase). Under this type of agreement, the purchaser in effect takes out a loan to buy the vehicle from a third party.
* All vehicle images and car descriptions on this site are for illustration and reference purposes only and are not necessarily an accurate representation of the vehicle on offer.
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