Car Finance

4. What Type of Finance?

The type of deal to go for will depend on whether or not you want to own the car eventually, and what extra services you want. Your tax position will also be relevant.

4.1 If you do want to own the car, go for hire or (lease) purchase.

• You make the same payments all the way through, or choose lower payments initially and a larger ('balloon') payment at the end.
• The car remains the property of the finance company until you have made the final payment. You are responsible for maintenance, servicing and insurance.
• Financing costs will be based on the cost of the car, less the deposit, plus interest and a charge for administration.
• Your liability will show up on your balance sheet, and might (if it is substantial in relation to your assets) affect your ability to borrow.

4.2 If you do not want to own the car, go for a lease arrangement.

• This arrangement makes sense when the vehicle will be used primarily for business.
• It also makes sense if you have neither the time nor the resources to spend on vehicle disposals.
• You make the same monthly payments the whole way through the deal.
• Check whether you or the leasing company is responsible for selling the car when the lease period is up. The employee who used the car may be able to buy it.With some lease arrangements, you may be entitled to a share of the proceeds when the car is sold.
• You may be liable for additional costs if the car is in poor condition at the end of the lease, or if you exceed the agreed mileage.
• The car remains the property of the finance company but you are responsible for maintenance, servicing and insurance.

4.3 An operating lease (also known as contract hire) may include servicing and maintenance.

• Ask for quotes that both include and exclude servicing and maintenance options, so you know what the costs will be.
• Check exactly what is covered. What about replacement of parts, or consumables, such as tyres?
• Check whether anything is excluded. For example, damage from excessive wear.
• Check whether the dealer provides additional services.For example, a replacement car when your car is being repaired or serviced, or delivery and collection of the car before and after servicing.