Opting out of the company car scheme
When opting out of the company car scheme, many employees choose Personal Contract Hire. This is basically Contract Hire but for individuals, Contract Hire is for business users.
For those who are not familiar with either method, probably the best way to think of it is as car hire, but over the long term, perhaps two or three years although it can be longer.
Both Contract Hire and Personal Contract Hire are normally quoted as three payments in advance followed by 23 monthly payments if it's a two-year contract. Or followed by 35 payments if it is a three-year contract.
Sometimes you will see monthly rentals advertised that appear to be very attractive but on closer inspection you will see that they are asking for six payments in advance or on occasions more.
As to whether a two or three year contract is better really depends very much on personal circumstances. Some people like the shorter commitment involved with a two-year contract others opt for three. Sometimes a two-year contract on a particular vehicle can be less expensive than three years and on other occasions it's the other way around.
If the monthly rental is the same for a two and three-year contract, providing it meets the client's needs, it is slightly cheaper to take a three-year contract. This is because in both cases you are paying the initial three payments in advance.
What can be confusing for clients when they first start looking for a vehicle is how the monthly payments work out for different vehicles. It can happen that a client sees a vehicle they like but find that it is outside their monthly budget. They then find a car that is perhaps £2000 less expensive to buy, only to be told that the monthly rental is higher than the car that was more expensive. Not unnaturally this makes no sense at all to the client.
The reason is residual values. These values are determined by a number of factors, amongst other things, reliability, maintenance costs and future model changes, all of which affect residual values. Another factor that often surprises clients is that having added the option of metallic paint to their vehicle that may cost in the order of £400, the monthly rental actually drops. This is because the future value of the vehicle is projected to be higher with metallic paint than without it, because it is a vehicle that a second hand buyer would expect to have metallic paint.
It also works the other way around; if you were to order say a 7 Series BMW in manual, the cost of the vehicle new would be less expensive than an Automatic. However the monthly rental would, with most Contract Hire companies, be higher because residual values would be hard hit by the fact that it is manual and therefore extremely difficult to sell in two or three years time.
When looking on the Internet for a particular car, there will be companies advertising varying monthly rentals for the vehicle. However because the biggest market is Contract Hire, most companies will be advertising Contract Hire Rates. These rates are + Vat, of which a company is usually able to recover 50% of the Vat that they pay. A Personal Contract Hire rate is quoted inclusive of Vat, because a personal user is not able to reclaim Vat. However it does not necessarily work to take the Contract Hire rate you see advertised and add Vat in order to arrive at the Personal Contract Hire Rate.
The reason is that there are certain Funders that specialize in Business Contract Hire and do not offer the same rates for personal users. If a rate advertised applies to business and personal users the advertiser will normally state in the advertisement for personal just add Vat.
With both Contract Hire and Personal Contract Hire there will usually be an option to include maintenance in the cost of the monthly rental. It is worth looking at the service intervals for the vehicle you are interested in acquiring and taking into account your planned mileage.
If for example it has service intervals of every 18,000 miles and you are planning on doing 10,000 miles per annum over three years, there will be just one service during that term. As most vehicles now have a three-year warranty the only other consideration are tyres; many maintenance contracts include tyres, even burst tyres. It is an individual decision but in many cases, adding maintenance does appear to justify the additional cost.
Should you have any queries or questions with regard to Personal Contract Hire, Contract Hire, Lease Purchase or car Hire Purchase, please do not hesitate to contact us. Bowater Price plc 01494 536 536. www.bowaterprice.com
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Bowater Price plc - Personal Contract Hire and Vehicle Hire Purchase