That's quite cool. Won't let any employees near it then!
What's the difference between contract hire and finance lease? Which one do you do, and why?
Thanks
Tom
The difference between C/H and Finance Lease is who takes the risk at the end of the contract.
With C/H the finance house takes the risk.
With a Finance lease you take the risk. It is particularly popular with van drivers as there are no damage re-charges levied by the finance house. There are also no mileage restrictions but over mileage will reflect on the vans value at time of resale.
The principal behind risk is what that vehicle is going to be worth at the end of the contract in 3 or 4 years time with a certain mileage on it.
Some may remember the situation in 1999/2000 when “Rip Off Britain” gained momentum with people able to import the same model cars and vans to UK spec cheaper from Europe than buying the same vehicle in Britain. Suddenly the finance markets were thrown into disarray here as the price of new cars and vans dropped. Citroen rebadged the ‘LX’ Xsara’s and Xantias to ‘Fortes’ and reduced the selling price. This had a knock on effect on the vehicle’s residual value.
I remember one instance a car came back off contract hire at that time with a residual value which was much higher than the retail price of the car second hand off a dealer’s forecourt. The finance house had to sell that vehicle at a loss as it was their risk. Had it been a Lease contract, the owner would have lost the money.
Whilst financing is a very personal thing, I would tend toward a Finance Lease arrangement with no balloon payment at the end. That way you will be able to replace your van and put the full trade-in value toward the deposit on the next van or keep the van but continue to lease it under a secondary rental scheme called a peppercorn rental. (In our day the rental would be around 1 monthly payment a year).
Finance houses didn’t like you to peppercorn rent your van they prefer you to buy a new van they can make money from. But a peppercorn rental allows you flexibility to continue to use your van with all your equipment bolted down inside at a low annual cost.
As has been noted by others, the benefit of having a residual does give you more money available to spend expanding your business. But you need to be look at the implications of the balloon payment and be honest with yourself - can you afford it at the end of the day? I knew one chap who had a separate van account at the bank which he transferred a small amount of money into every month by direct debit. He didn't need to use it at the end of the day, so was a form of forced savings.
Under a true Finance Lease you are not allowed to own the van at the end of the contract. It has to be sold to a third party, which could be a family member not associated with your business. The finance house also take a small percentage of the sale price of that vehicle to ‘close the contract’ – usually around 2%.
With regard to bolting the tank through the chassis. On a Finance lease this isn’t an issue on return. However, I have asked our local MOT inspector how he would inspect a van at MOT. He says that in his judgement you have weaken the integrity of the van by doing this and he would fail the van. He suggested a better way was to buy high tensile ‘U’ Bolts that would go around the chassis rail, up through the floor and bolt onto the tank frame. He would also recommend a spreader plate under the ‘U’ bolts to spread the load over a greater section of the chassis rail.
On purchasing a van initially, I would carefully remove the ply lined floor, store it away and paint the metal base of the van floor with Protectakote. At the end of the contract I would remove all my stuff and put blank rubber grommets onto the holes I had drilled to secure the tank. I would then replace the original ply lined floor back into the van and screw it down with the screws that were originally used.
There are other forms of finance that copy a Finance Lease that do allow you a become the owner of the vehicle at the end of the contract. This type of lease is more like an HP with a leasing flavour.
My advise is to look around and ask questions about what this means for ME. And remember, haggle. Just because a deal is advertised as the deal of a life-time doesn't mean that it is. Just as you do with insurance, look around and get a number of quotes.
