How to Fund a Company Vehicle
If your company runs a number of cars, then it can be a difficult decision to decide how best to fund your company vehicles. There are a number of different options besides just buying and leasing your vehicles, and each one can offer you different benefits depending on how you use your vehicles.
Popular options for funding company vehicles are outright purchase, hire or lease purchase, finance lease, contract hire, and contract purchase. While many overlap in some ways, there are subtle differences that can make a difference to your company.
When you’re running a fleet of company vehicles, finding the right way to fund those vehicles can make a big difference and save you money further down the line.
Outright Purchase
The obvious benefit of this method of funding your company vehicles is that the company has sole ownership of the vehicles. This means there are no restrictions on how you use the vehicles, but there are some drawbacks.
Once you own the vehicle outright, you are solely responsible for the maintenance of the cars, and you will incur the natural depreciation of the vehicle‘s value. Although you own the car, there are still future costs to be incurred.
To get a better idea of how this can affect your finances, go to Auto Finance Online and see what options you have available.
Hire/ Lease Purchase
If you don’t want to make such a big investment upfront but still want to end up owning the car then a lease purchase might be the best option. With a lease purchase you pay a deposit, normally around 15% and pay the rest over an agreed amount of time.
This can be useful from a cash flow perspective and means you own the vehicle in full by the end of the payments. Again, you are responsible for vehicle maintenance costs, but you’re left with an asset at the end of the process.
In this option, it can potentially help you save money in the long run.
Contract Hire
Under contract hire, you pay a smaller up-front cost of around 6-7% and pay monthly instalments, but the financing company owns the vehicle for the duration of the contract. Although you give the vehicle back at the end of the contract, this option means the financing company will take care of servicing and maintenance costs.
Although the monthly payments can’t be offset against tax, half of the VAT on the payments can be reclaimed.
Finance Lease
A finance lease is a service where you essentially rent the car and return it at the end of the lease. You will pay an upfront payment, normally around 15% and then pay monthly installments for the duration of the agreement.
You are responsible for maintenance and servicing costs, but of course, this will be reflected in the price vs a contract hire.
Again, monthly payments can’t be offset against tax, but half of VAT on payments can be reclaimed and all of the VAT you spend on maintenance.
