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Business Car Finance Options and Car Leasing Explained

There are five different car finance options for business users. We have explained each of them below.

1. Business Contract Hire

Contract hire is a form of car leasing for businesses.  It is an ‘operational lease’ that allows a business to lease a company car by simply making a fixed monthly payment for a period that is typically between 2 and 4 years. 

At the end of the lease contract, the business returns the old company car and obtains a new car and lease contract.  Occasionally, here may be an opportunity to purchase the vehicle at the end of the period if done through a third party.

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2. Business Contract Purchase

Contract Purchase is a form of car leasing.  It is very similar to Contract Hire but for contract purchase at the end of the lease the business has the option to buy the car for a price agreed when the contract was signed.

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3. Business Hire Purchase

The business pays monthly over the agreed contract period of 12 to 60 months and then pays a nominal fee at the end of the contract and obtains legal ownership. The monthly payment is determined similarly to a car loan, from the total value of the car plus interest divided by the number of months. This is just as someone would under a personal hire purchase agreement.  

Unlike contract hire or purchase, the business must pay for the entire cost of the vehicle and monthly payments are therefore much higher than when ‘leasing’ on a contract

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4. Business Car Loan

A loan for a car is either a secured (often called a car loan) or unsecured loan. A secured loan or car loan is when the finance company retains ownership of the car until all of the money borrowed for the car loan is repaid and is therefore similar to hire purchase.  An unsecured loan is when the loan attaches to the business (not the car) and the business owns the car from the date of purchase.  If there is a default on a secured loan, the finance company takes the vehicle. If the business defaults on an unsecured loan, the finance company will pursue the company directly and take legal action for repayment of the loan.  Unsecured loans are often more expensive than car loans and will have a higher APR.

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5. Finance Lease

A car finance lease is very similar to Contract Hire, however at the end of the contract the business may be liable for a further payment. This happens when upon completion the vehicle sells for less than the anticipated amount and the business has to pay the difference.

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