Car Finance

1. Your Requirements

How good a deal you get depends largely on how well you work out your needs beforehand.

1.1 What do you want to get out of the deal.

You probably need a lease purchase or hire purchase agreement (see 4.1). But check the running costs before making a final decision.

You might be better off forgetting about buying it through the business, and considering a personal contract purchase instead. Check the tax position and talk to your accountant.

• A mid-range car (or cars), paid off in full, for use in the business?
• An executive car, paid off in full, mainly for your personal use?
• Just the use of some reliable vehicles for two or three years?

1.2 What do you want to put into the deal?

Directors of limited companies that are seeking finance are increasingly required to give personal guarantees.

• Nothing at all up front, but you can meet monthly repayments.You will have to put down a deposit. Paying ten per cent is normal, but you might get away with three months' payments.If your credit record is poor, or your business is new, you might have to put down six months' worth of payments.
• Most of the price. You need a top up, but you would rather keep repayments down.Think carefully before choosing this option. If you use up your working capital (or even worse, your overdraft facilities) on a big deposit, you reduce your commitments. But you could end up with inadequate cash for trading.Try to manage your resources instead by spreading car payments more evenly.
• A regular amount over a given number of years, so you know what your outgoings are going to be.A hire purchase deal or a lease should suit you fine. Consider a servicing and maintenance contract (see 5).
• As little as possible, at least for now.Go for a lease (or possibly a lease purchase) deal.

1.3 What kind of deal are you looking for?

Most purchase or lease deals allow you to spread the cost over two or three years. The one you should go for depends on both your needs and your tax position.

Go for contract hire (or a contract purchase). The costs will be higher, but you will know what your outgoings are going to be, and they will be spread evenly over the period of the deal.

Make sure you get details of the servicing and maintenance charges, and exactly what they cover (see 5).

Consider fleet management. It will cost more than contract hire or contract purchase, but should relieve you of all the management hassles associated with cars.

• Just finance.
• Finance plus servicing and maintenance.
• Help with purchasing and sale, as well as everything in between.