Which business car financing product is right for you?
Selecting the right business car financing product can feel intimidating.
This decision, crucial as it is, can significantly impact the operational efficiency and financial health of your business.
In this article, we'll guide you through the most common options, helping you to understand what each involves, and how they could fit your business's unique needs.
Getting familiar with fleet financing
The first fleet funding decision usually comes down to whether to purchase vehicles outright or to use a finance option. Both come with advantages and disadvantages.
Purchasing vehicles outright can give total control over your fleet (since you’re not subject to contractual agreements around elements like mileage, servicing, or vehicle sale), but it also means substantial up-front costs and usually needs more resources to manage (since you’re responsible for everything yourself).
Financing vehicles through a leasing provider, on the other hand, offers lower initial costs, predictable monthly payments and reduced administrative effort via options that include servicing, maintenance and repair, but also means you’ll be subject to contractual agreements (and potential penalties for breaching these).
Fleet finance options compared
*Excluding potential charges for out-of-contract mileage or vehicle damage.
Fleet finance options in detail
Contract Hire
Great if you want to keep fleet management admin to a minimum
Business Contract Hire (sometimes called ‘Operating Lease’) is one of the most common types of financing option that offers flexibility and operational convenience. It is great for businesses that need vehicles without the management workload and risks that come with ownership.
Under a Contract Hire agreement, you lease business vehicles (usually from a leasing company) for a predetermined length of time and mileage. Your business doesn't have to worry about the resale value of the vehicles or their routine maintenance, as these responsibilities fall under the leasing company’s domain.
Instead, you simply pay a fixed monthly lease amount for the term of the contract and (so long as you stay within the agreed contract limits and return the vehicle in reasonable condition according to the BVRLA Fair Wear and Tear guidelines) return the vehicle at the end of the contract with nothing more to pay.
Finance Lease
Great if you want ease of use combined with the risks/rewards of selling
Finance Lease can offer some of the finance and operational flexibility of Contract Hire with a vehicle that sits on your balance sheet (and the risk/reward opportunity of selling the vehicle at contract end).
Under a Finance Lease agreement, you agree to lease the vehicle for a fixed term and make regular rental payments to the leasing company. These payments are generally fixed, providing you with predictable costs that can be adjusted to fit within your budget.
At the end of the Finance Lease term, you have a couple of options. You can either sell the vehicle to a third party, or pay off the final value yourself and continue to use it under a set agreement.
Sale and Leaseback
Great if you want to free up cash from your own vehicles
Sale and Leaseback allows you to release the value tied up in your owned vehicles, converting them into liquid assets that can be used to boost your cash flow or reinvest in your business.
Under a Sale and Leaseback agreement, your business sells an owned vehicle to a leasing company, such as Alphabet, and they then immediately lease them back to you. This process transfers the ownership of the vehicles to the leasing company, effectively turning your fleet from a capital expenditure to an operational one.
Contract Purchase
Great if you want to own your vehicles without paying for them up-front
Contract Purchase offers the convenience of a managed vehicle and the option to own the vehicle at the end of the contract. This agreement is characterised by a fixed term and fixed payment structure, providing predictability and ease of budgeting.
Under a Contract Purchase arrangement, your business gets to use the vehicle for a predetermined period while making regular payments. However, unlike other lease agreements, you have the option to buy and own the vehicle at the end of the contract.
This option is exercised by paying a pre-determined final payment and an Option to Purchase fee. This is beneficial for businesses that might want to own the vehicle in the future but prefer not to make the substantial upfront investment associated with outright purchase.
Still not sure which is right for your company?
As a seasoned player in the fleet leasing financing industry, Alphabet offers a comprehensive suite of financing solutions tailored to diverse business needs. Whether your business is looking for a Finance Lease, Business Contract Hire, Contract Purchase, or a Sale and Leaseback solution, Alphabet can provide the guidance and support you need to make the best decision.
Our team of experts understand the complexities and nuances of fleet financing. They work closely with your business to understand your unique requirements, financial situation, and long-term goals. This customer-centric approach enables us to recommend the most suitable financing product that aligns with our customers’ strategy and objectives.
Get in touch
Selecting the right mix of fleet financing solutions is a crucial decision that can significantly impact your business operations and bottom line.
Whatever your businesses’ priorities, with expert guidance and comprehensive financing solutions we can help you set up your fleet funding strategy for success.
Get in touch on 01252 976 010 to explore your options and find out about our latest finance offers.
