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What is Hire Purchase?
Hire Purchase/Conditional Sale is one of the most common methods of funding a vehicle purchase.
A simple and traditional way to finance your vehicle over a fixed period for a fixed monthly repayment.
The loan is secured against your vehicle and once all the repayments due under the terms of the agreement have been made you take ownership of the vehicle.
We will help you determine the amount you need to borrow and establish the loan term most likely to keep your repayments affordable now and in the future.
What are the benefits of Hire Purchase on a Van or Commercial Vehicle for you and your business?
We speak with a number of business owners who do not have a full understanding the benefits of Hire Purchase for their business.
Hire Purchase seems to be the ‘Old Fashioned’ way to finance a commercial vehicle, why is that?
The minimum deposit required for a Commercial Vehicle is generally the FULL VAT of the Van purchase cost.
On some occasions, the finance provider may request and additional 10% or 20% in addition to the V.A.T. As a deposit.
If you or your business are VAT Registered – You are able to then reclaim the VAT in your next VAT Quarter.
If you are NOT VAT Registered – It’s 20% of the vehicle cost that you will not be able to reclaim.
Hire Purchase is an OWNERSHIP AGREEMENT – What does that mean?
‘Ownership Agreement’ simply means: At the end of the agreement – Once you have paid EVERY payment – You Own the vehicle.
You don’t have to hand it back or sell it on at the end of the agreement – It is now your vehicle to do with as you choose.
There are some other adaptations of Hire Purchase:- Lease Purchase, Etc.
If you are unsure of the agreement that you are quoted or offered,
It is this simple:
With a Van or Commercial Vehicle – An Ownership Agreement: YOU WILL PAY ALL OF THE VAT AS A DEPOSIT.
If the required or requested Deposit is less than the Total VAT Amount of the vehicle cost….It is NOT an Ownership Agreement. (*This could be potentially a Finance Lease – You have to sell the vehicle at the end of the term).
(If VAT is charged on every payment then it is NOT an ownership agreement).
Hire Purchase Agreements generally are for periods of 2 to 5 Years: Offering a FIXED MONTHLY PAYMENT for the duration of the agreement.
Most Hire Purchase Finance Providers will charge a ‘Finance Documentation Fee’ & ‘Option to Purchase Fee’.
These fees’s can either be ‘Spread’ across the term of the agreement or be paid with the first monthly repayment & last monthly repayment.
You and your business take responsibility for the maintenance and general upkeep of the vehicle.
It is a requirement that the vehicle remains taxed and Fully Comprehensively Insured for the duration of the agreement.
Are there any Tax Advantages to you and your business?
There are several TAX advantages for Hire Purchase: –
Annual Investment Allowance (AIA) being one of the main advantages:
A commercial vehicle can be classed as ‘Plant & Machinery’
This offer’s you the option to offset up to 100% of your vehicle purchase cost against TAX in a 12 month period.
Annual Investment allowance does vary from year to year, so you should clarify this with your accountant.
Vehicle finance for businesses is a complex area and recommending the correct funding solution will depend on many factors including: –
• Business Status,
• Cash Flow,
• Other Borrowings,
• Vehicle Usage,
• Suitability and Affordability.
Hire Purchase Application Process:
We will assist with calculating the amount of finance required to complete your vehicle acquisition. This calculation is likely to include the purchase price of the vehicle you are considering less any part exchange and or cash deposit.
As part of the loan approval process, personal details for each applicant will be passed to one or more Finance Companies. Typically the personal information required to assess your loan application will be as follows: –
• Full Name,
• Date of Birth,
• The address(es) where you have lived for the last 5 years,
• Home Owners status – Owner / Tenant,
• Telephone number(s),
• Employer(s) you have worked with for the last 5 years,
• Marital Status,
• Bank Account number & Sort Code.
Credit searches will be undertaken with one or more Credit Reference Agencies.
In most scenarios, the Finance Company decision to accept / decline your loan application will be immediate although some applications might take longer to process.
Once accepted / declined we will complete all necessary regulatory paperwork with you ensuring you have a clear understanding of the finance agreement you are entering into.
We will need you to verify your identity fro fraud purposes: –
• The original applicants Driving License (Photo Card) will be required to confirm your identity. You may also be asked to provide supplementary documentation as part of the approval process – Passport, Utility Bill Or Bank Statements, May be Requested.
• Proof of comprehensive vehicle insurance may also be required.
To ensure you get the very best advice, you should seek professional guidance from your accountant or a Business Finance Specialist.