Tips for finding the right vehicle finance package

Deciding on the right vehicle finance package can be difficult. There are three basic options:

• You can purchase outright.
• Enter into a hire purchase agreement.
• Lease a vehicle over a fixed period.

There are pros and cons to each of them, so you need to think carefully. Key points to bear in mind include:

Initial costs: Cash flow is often the starting point when it comes to deciding whether to purchase, hire or lease a vehicle. Purchasing can make a significant dent in your bank balance while there is usually no initial cost to a monthly hire purchase or leasing arrangement.

Budgeting: If you buy new, you will tie up a significant amount of cash that might be better spent elsewhere in the business, but you will only need to budget for maintenance costs thereafter. If you sign up to a hire purchase or leasing agreement, then you can budget a set amount every month and declare a fixed cost over any given reporting period – although you will pay extra for interest, administration charges and in some cases, depreciation.

Real term costs: In order to understand real costs, you need to compare the cost of purchasing with the cost of a hire purchase or leasing agreement. Remember to factor in the vehicle and maintenance costs, tax and insurance with the total monthly cost of the hire purchase or leasing cost (assuming it includes maintenance).

The end of the agreement: While an owned vehicle will suffer depreciation, it is yours to retain as an asset and can be sold to boost cash flow. With a hire purchase agreement, by contrast, you may have to pay a one-off lump sum at a time when you need the cash. With leasing arrangements, meanwhile, you will return the vehicle and end up with nothing to show for it.

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