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Guide
Business Contract Hire (BCH)
Business car and van leasing (or business contract hire/BCH, as it used to be called) offers distinct business benefits and is by far the most popular form of lease financing today.
Business Contract Purchase Explained
Business Contract Purchase is a long-term rental purchase agreement. Suitable for businesses seeking a low initial outlay and the option to buy at the end of the contract.
What is Business Contract Purchase?
Business Contract Purchase is a long-term rental purchase agreement. When the agreement comes to an end, there are 3 options: 1) return the vehicle, 2) purchase the vehicle outright, or 3) use the vehicle as part-exchange for a new one.
Your business makes an initial deposit followed by fixed, monthly payments. If at the end of the agreement you wish to purchase the vehicle, you’d need to make a final ‘balloon’ payment covering the full remaining value of the car or van.
With BCP you’re paying off the depreciation amount for the vehicle, along with interest calculated on the vehicle’s total value. If you choose to purchase the vehicle at the end, you’ll also be paying the guaranteed future value (the GFV) of the vehicle (which is established at the start of the agreement).
Business Contract Purchase could suit your business...
Business contract purchase could suit you if your business is seeking a lower initial financial outlay, known fixed monthly payments and the option to buy the vehicle at the end of the contract, or if you are restricted in the amount of VAT you can reclaim.
Benefits of Business Contract Purchase
- There is the option to purchase the vehicle
- A much smaller deposit/initial payment is required compared with HP/a loan and monthly payments are often also lower
- Monthly instalments are not subject to VAT (VAT is however payable on any maintenance package you may opt for)
- Knowing your set monthly payments can help your business budget better (due to all in one fixed-cost motoring and low risk of large bills)
- If at the end of the contract the vehicle is worth more than the GFV estimated at the start, the profit can be either kept or put towards a subsequent vehicle
Things to consider
- You must pay interest on the entire value of the vehicle, even if you don’t opt to purchase at the end
- If the option to buy is taken, the stated GFV amount set at the start of the agreement must be paid (this amount is non-negotiable)
- The car or van must be properly insured, maintained and in your business’ possession until the full value of the vehicle is paid off (or else the contract ends)
- Annual mileage needs to be estimated in advance and may incur charges if exceeded
- If you wish to settle early, the difference between what the vehicle is worth at that time and what remains outstanding must be paid (this could create negative equity, especially if the lease is terminated within the first 3 years)
Information is provided as a guide only. Select Car Leasing cannot be held responsible for any personal or business decisions made as a result of information provided in the guides. As with all aspects of taxation, it is the responsibility of individuals and businesses to understand the rules and regulations and act accordingly. As personal and business circumstances can vary, it is also advised that you take professional accounting advice before making a final decision.
If you'd like to speak with our friendly team about business vehicle leasing, simply call 0118 920 5130 or email us at: enquiries@selectcarleasing.co.uk
We've got business car leasing covered from every angle
If you're thinking about business car leasing, we have a collection of informative guides on all aspects of business leasing to make the process as simple as possible.
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Business Finance Lease
A Business Finance Lease is similar in some respects to car or van leasing in that it’s a long-term rental arrangement where your business leases a vehicle(s) of its choice for an agreed length of time, at a set fee. With finance lease however, when the contract ends your business has two options.
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Guide
Business Lease Purchase
Business lease purchase is a rental agreement whereby the business makes an initial payment followed by fixed, monthly payments. At the end of the contract term, the business must purchase the vehicle.
