At Pentagon we offer a wide range of finance and leasing options to make it easy for you to drive the new or used car or commercial vehicle you really want.
We’ve put together a simple guide to show how each of these options work and what benefits they offer to both business and private customers.
In Brief – Choose this and you’ll benefit from a regular payment structure with outright ownership of your vehicle at the end of the term.
How It Works - Hire Purchase finance usually suits the buyer who intends on keeping the vehicle for longer than the term of the loan. Your deposit is deducted from the total cash price of the vehicle to give a balance that requires financing. Interest is then added and the total of the balance and interest is repaid in equal installments throughout the life of the loan via monthly repayments, usually over a 2, 3, 4 or 5-year agreement (whichever you prefer). This is the simplest and most popular method of buying a vehicle with finance. After you've made your final payment at the end of your agreement, the vehicle is yours.
Features and Benefits
In Brief – With a Contract Purchase Plan you normally make lower fixed payments every month than you would with other options and the future value of your vehicle is guaranteed.
How It Works - Simply choose the vehicle you wish to purchase and what deposit you want to pay. Then you estimate what your annual mileage will be and decide on how long you want to keep the vehicle.
Based on your chosen vehicle, the contract term and the estimated mileage we will then calculate the Guaranteed Minimum Future Value (GMFV) of your vehicle at the end of your agreement. The GMFV is deferred to the end of the agreement and is the optional final payment.
Because the GMFV and the initial deposit are deducted from the price of the vehicle you then make what will generally be lower monthly payments based on the remaining balance plus the agreement interest.
At the end of the agreement, you have 3 choices:
Choose another vehicle and use any excess value over the GMFV towards your deposit. You can trade in your old vehicle or choose to sell it privately.
If you want to keep the vehicle, you only need pay the GMFV and it’s yours.
Simply return your vehicle in a reasonable condition and within the agreed mileage with nothing more to pay.
Features And Benefits
In Brief - It is an efficient way of funding the use of a vehicle without the cost of ownership. You benefit from being able to choose a low initial deposit, regular fixed monthly rentals and no worries about what to do with your vehicle at the end of the contract.
How It Works – Contract Hire for business is a tax efficient way of funding a business vehicle. This is because the monthly payments can be offset against taxable profits. The amount that can be offset is dependant upon the new retail price of the vehicle (please contact us for further details).
If your business is VAT registered, 100% of the VAT payable on the finance element of the monthly payments can be recovered where the vehicle is either a van or a car used solely for business purposes. Where the vehicle is a car used for business and private mileage, then only 50% of the VAT payable on the finance may be recovered.
You can also include a maintenance package within the monthly payments. This covers regular servicing costs and can also cover the costs of general wear and tear, making budgeting even easier.
Features and Benefits
Private drivers can also benefit from a contact hire vehicle. The advantages are that once you have agreed an initial deposit and the monthly installments the only extra you have to pay for is the fuel and vehicle insurance. Regular maintenance can also be included in the monthly payment. At the end of the agreement you simply hand the vehicle back. Drivers also benefit because the finance is charged on the VAT exclusive price of new and qualifying used cars.
In Brief – If your business is looking for a flexible way to finance a vehicle that combines a minimum initial outlay with maximum tax efficiency then this could be your best option.
How it works - Although the business will never actually own the vehicle, finance leasing allows many of the benefits associated with ownership available to the business while at the same time offering significant tax advantages.
You choose the term and the deposit and your monthly payments are then calculated based on the VAT exclusive price of the vehicle you want. During the agreement period 100% of the VAT payable on the finance element of the monthly payments may be recovered (assuming the business is registered for VAT) where the vehicle is either a van or a car used solely for business purposes. Where the vehicle is a car used for business and private mileage only 50% of the VAT payable on the finance may be recovered.
For the duration of the agreement the vehicle will be shown as a 'leased asset' within your balance sheet. The monthly payments are treated as a revenue expense and so can be offset against any taxable profits. Furthermore, the monthly payments can be tailored to match the cash flow of the business, with a “balloon” rental being used to defer part of the vehicles initial cost.
At the end of the agreement period, the vehicle is normally sold and the proceeds used to pay off the “balloon” payment that was agreed at the outset. If, following the sale there is a shortfall, then the leasee must make up the shortfall. If, however the amount raised from the sale of the vehicle exceeds the "balloon" amount then the excess will be refunded as rebate of rentals. Alternatively, in some circumstances you can choose to extend the rental of the vehicle – this is commonly referred to as a 'peppercorn' rental.
Features and Benefits
If you have any questions about any of our financial services please contact your local dealership where a business funding specialist will be happy to explore the best options for your circumstances.
|
Business |
Hire Purchase | Finance Lease | Contract Hire | |
| Low initial deposit | OPTIONAL | OPTIONAL | OPTIONAL | YES |
| Fixed monthly payments / rentals | YES | YES | YES | YES |
| Ownership at the end of the agreement | OPTIONAL | YES | NO | NO |
| Postpone a 'balloon' payment to the end of the agreement | YES | NO | YES | NO |
| Guaranteed Minimum Future Value | NO | NO | NO | NO |
| No disposal uncertainty | YES | NO | NO | YES |
| No depreciation risk | YES | NO | NO | YES |
Claim the VAT back through your quarterly return before you pay it with VAT Assist from Pentagon.
Every effort has been taken to ensure the accuracy of the above information. We would advise you to also seek independent advice. Business users only. Finance is subject to status. Conditions apply.
Please contact us if you require additional information.
