Once you have decided which vehicle you want, the next big decision is how best to fund it. Here at ecofleet, we understand that the many different options can be a little confusing so feel free click on one of the options below and we’ll do our best to explain it to you.
If you’re still unsure which option is best for you or would simply like more information, see if you can find your answer among our many FAQs or feel free to contact us.
However, we do always recommend that you discuss your situation with an independent financial adviser to ensure that you are selecting the correct package for your individual needs.
As the most popular choice for VAT registered companies, contract hire is simply a fixed term hire agreement where you pay a fixed monthly rental for the use of the vehicle over an agreed term and mileage. A range of additional services such as road fund licence and maintenance packages can be included to provide total, hassle free motoring. Contract hire is available to sole traders, partnerships and limited companies.
What are the benefits?
- Off balance sheet funding
- Fixed and accurate monthly budgeting
- Low initial outlay
- Improved cash flow
- No administration hassle
- No disposal risk
- Low capital expenditure
- No depreciation risk
- VAT recoverable on monthly rentals*
* You can claim back 50% of the VAT on the finance element if the car has some private usage. If the car is used solely for business (i.e. a pool car) then 100% can be recovered. All VAT is recoverable on the maintenance element of the contract.
This funding method is best suited to companies unable to reclaim VAT and wish to have an option to own the vehicle at the end of the term. Contract purchase is a funding agreement that uses the future value of the car to reduce monthly costs. At the start of the contract a pre determined future value for the vehicle is agreed. At the end of the term you have the option to buy the vehicle or simply return it to the finance company at no further cost providing it is within the agreed mileage and condition terms. The vehicle is shown as an asset on the balance sheet and is particularly suited to companies that operate high value cars that would like the option to purchase but want to avoid any depreciation risks.
What are the benefits?
- Vehicles shown on balance sheet so can be written down against corporation tax
- Low initial payments
- Fixed monthly payments allow accurate budgeting
- Optional maintenance packages can be included
- Improved cash flow
- No depreciation risk
- No disposal risk
- Opportunity to purchase the vehicle at the end of the contract
A contract to finance the vehicle over a pre-agreed period of time. This method is suitable to VAT registered companies who want to have an asset shown on their balance sheet. The capital cost of the vehicle is spread over the hire period and there is no pre planned opportunity to buy the vehicle. The hirer can either choose to spread the cost (including interest charges) equally through fixed monthly payments, or reduce the monthly payments by incorporating a ‘balloon’ payment based on the anticipated future value of the vehicle at the end of the term.
What are the benefits?
- The funder can reclaim the VAT on the purchase price of the car - this is reflected in lower monthly rentals
- Low initial outlay
- Fixed and accurate budgeting
- Option to include ‘balloon’ payment lowers monthly rentals
- Option for third party to buy the vehicle at the end of the contract
- VAT recoverable on rentals*
* You can claim back 50% of the VAT on the finance element if the car has some private usage. If the car is used solely for business (i.e. a pool car) then 100% can be recovered. All VAT is recoverable on the maintenance element of the contract.
The more traditional way to finance the purchase of a vehicle. After an initial deposit you pay regular fixed monthly payments over a fixed period of time, usually 1-4 years. Upon final payment ownership of the vehicle passes to you. However with this funding option, the risks of depreciation, disposal, resale value and running costs lie with the end user.
What are the benefits?
- On balance sheet - can be written down as a company asset
- You gain ownership of the vehicle
- Fixed repayments for the duration of the contract
- Low initial outlay (usually 10% deposit)
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