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There is a multitude of reasons why you would drive around in a nice new vehicle for business use. Perhaps you are an employee who has worked their socks off and have been rewarded as part of a company car scheme (or expertly negotiated a necessity for one, in a fashion that would make Harry Redknapp on deadline day look like a slobbering mess) – if this is the case, then good for you, tiger!
You may be a business owner or sole trader, who wants to utilise the monetary benefits of business leasing to wheel around in a posh and shiny horseless carriage, to impress would-be clients and passive-aggressive jealous neighbours.
Whatever your reason, business contract hire and leasing can seem daunting. Is it right for me and my business? Am I eligible? How much does it cost? Are there additional costs? Do you pronounce both S’s in “Ssangyong”?
(The answer to that last question is no. If you thought it was, then you may as well say “Merkeedeez” and “Buh-Muh-Wuh”…)
Have no fear though friends, let’s explore what Business Contract Hire is.
Business Contract Hire, usually abbreviated to ‘BCH’, is a form of business car leasing that is designed to operate in a way where a vehicle lease agreement is tied to a sole trader, partnerships and limited companies as a financial asset, rather than linked to an individual.
Contract Hire works like a long-term rental agreement. You simply rent a vehicle over a set number of years (measured in months – i.e. 18, 24, 36, 48 etc.) and then the vehicle is collected at the end, freeing you and your business from having to administrate the ownership of a vehicle and subsequently sell it at a heavily reduced rate compared to what you would have spent on it when brand new (depreciated value).
The concept is simple enough:
NB: There are minor variations and additions to this process if you are looking at procuring and managing a large fleet of vehicles for your business. Our Fleet Management specialists will be happy to discuss this with you personally.
A fully-fledged professional such as yourself will potentially know a lot of this already and/or will have probably had a thrilling conversation with your bookkeeper about the matter. However, we are all about inclusivity here, so I need to ensure that everyone is on the same page. Therefore, here are some reasons to consider why leasing may be good for you and your business:
Some of you curious cats will have been looking at that last point and thinking “what is a residual value” and you may have been feeling silly for not knowing. Well, worry no longer!
Residual value refers to how much an item is worth after a period of time has elapsed. Cars are well known for being depreciating assets – this means that their value will only decrease. This usually happens at what I can only describe as an inversely-exponential rate. Similar to going on a diet – you start off losing lots of weight very quickly, this rate of loss eventually slows down and you begin to plateau and only lose small amounts of weight.
Cars will lose a lot of their value very quickly. Some cars turn their noses up at fad diets and hold on to their value very well… particularly high-end limited edition vehicles – but all of the more mainstream vehicles will hit the salad bar and shed their value quickly.
With Contract Hire, the total cost of your monthly rentals is roughly calculated like this:
(Vehicle Purchase Price) – (Residual Value) = Total Rental Cost with the total rental cost being divided up by your chosen ‘payment profile’.
This is how many payments you choose to make over the duration of the contract (e.g. 9+ 23 = 32 monthly payments over 24 months, with 9 monthly rentals being paid together initially, followed by 23 monthly payments.
As with all financial credit agreements, your business will need to meet eligibility criteria and be subjected to a credit check by the finance company that will be the funder of the lease.
As a general reference, we have experienced all of the finance companies to prefer that the following criteria be met by your business:
However, do not abandon your pursuit if your business doesn’t meet a couple of these points. Each finance company will have a different combination of eligibility measures and there are caveats and alternative procedures, which we can explore with you.
If you have any doubt about the above, or how it might affect your business’ application for finance, call our Sales Executives on 0330 221 0000 for further guidance.
You should always think about whether a financial product is appropriate and beneficial for your business, by looking at its drawbacks.
With a Business Contract Hire agreement, some points to consider would be:
We will contact you around 6 months before the end of your contract to discuss what you would like to do. You can then either choose to extend your current vehicle for a small amount of time (subject to eligibility and the Funder’s Terms & Conditions) or to look at your next brand new car.
Regardless, at the end, the car will be collected by a collection agency working on behalf of the Funder. The driver will analyse and record any damage to the vehicle, in line with the BVRLA’s Fair Wear & Tear Guidelines. Any damage that falls outside of these guidelines will be deemed chargeable to you.
The car will then be taken away and your contract will expire, releasing you to receive your next brand new vehicle.
If you require any further information about Business Contract Hire, Personal Contract Hire or would like to know about our current leasing special offers, please call us on 0330 221 0000 or email us at email@example.com.
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