| By :
Dirik Hameed
Companies provide different forms of car leasing. Often companies choose to look at contract hire as a popular method of vehicle leasing. The vehicle is paid for by a fixed monthly payment. The option to include breakdown cover and car maintenance in this payment is often included. Having a fixed amount allows both individuals and businesses to calculate the costs well in advance. After the duration of the contract the car is returned to the lease cars company. This does not provide the option to buy the car but protects the individual from any incurring debt. There is no large upfront payment (sometimes as much as a third of the value when buying a car) which means that business credit lines are freed up. A good way to pay for the car leasing is to offset the rentals against business profits. This usually allows for the VAT payments to be reclaimed. A finance lease is when the financing company buys the lease for the business customer. This loan is then repaid to the financing company in fixed monthly instalments. The vehicle is then shown as an asset on the company's balance sheet. Two payment options are available, firstly it is possible to pay the leasing contract in monthly instalments which are calculated with interest, alternatively you can repay the lease in smaller instalments with a lump sum paid at the end of the lease. Interest payments and monthly repayments remain constant as long as the usage parameters for the vehicle leasing, established at the start of the lease, do not change. Potential customers should be cautious when paying lower repayments. This is because the balloon payment at the end of the contract may exceed the cars current value. Once the contract has ended, the business can choose to continue using the vehicle under a 'peppercorn agreement', involving an amount being invoiced annually in advance and needing to be paid annually until the business decides to sell the vehicle. During a peppercorn agreement you do not own the vehicle. If you choose not to use the car any longer it is sold off to a third party with you keeping any earned capital over the value of the car. Contract purchase is similar to contract hire but allows the option for a vehicle to be purchased at the end of a contract for a pre-agreed price. Fixed monthly payments are made, which take into consideration the car's cost, anticipated mileage and depreciation, and other maintenance and service options the client may choose to include. Contract purchase allows you the freedom to purchase the car if desired but also gives the freedom of allowing you to return it to the financing company. A lease purchase agreement does not allow you to return the car at the end of the lease as it becomes yours. The vehicle's full value is paid via monthly rentals with a balloon payment at the end of the lease.
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