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Commercial Finance

Business and Fleet / Commercial Finance

Purchase or lease?

The way in which your fleet is funded can have a major impact on operating costs, and different funding options offer varying solutions dependent on usage patterns.

The vast majority of cars used for business are acquired either through outright purchase, leasing or some form of opt-out/ cash allowance system. Choosing the right method is essential to help minimise your costs.

Outright purchase.

Outright purchase, where a company uses its own cash to fund the fleet, historically has been the predominant funding method.

For an organisation with the cash to do this, and a fleet manager with the expertise to negotiate, purchase, maintain and insure the fleet, as well as oversee effective disposal, this can still work well. The benefits for larger fleets include substantial buying power, complete flexibility on acquisition and disposal and, in some cases, enhanced asset value.

Contract hire.

The advantages of contract hire mean it has overtaken outright purchase as the most popular funding method because it poses significantly less operational risk to the operator. Residual value and disposal risks are eliminated as both are taken on by the leasing company and packaged as part of the monthly rental.

Contract hire is also highly tax-efficient, particularly for cars with CO2 emissions of 160g/km or less: since April 2009, new rules mean
that for these vehicles 100% of lease rental costs can be offset against corporation tax.

Also, most companies can claim back a proportion of the VAT charged on the finance element of the monthly rentals as well as all the VAT on the service and maintenance part of the rental, if you choose to include this in the monthly charge.