Essential Guide to Financing Company Vehicles

Personal Message

Hi,I’ve put this report together to give you essential information that every business owner should consider, before

choosing vehicle finance. By reading on, you will save time and money, ultimately resulting in increased bottom line

profits for your business.

AsAs a business owner, I know time is the single most important resource business people have. That’s why I personally

ensured this report is a ‘no-nonsense’ read for you. I hope you will agree that it’s an investment of your time. It lays

out straightforward ways to cut costs and eliminate the hassles of managing company vehicles. This means you’ll

have one less thing to worry about in your business, so you can get on with the important work of running things

more efficiently.

WeWe are a specialised Vehicle Management Company and for over 25 years have helped more than 5000 businesses

in the UK and Ireland save serious money and time by following our independent advice. You’ve nothing to lose by

reading on but I can promise that you’ll gain some useful knowledge.

I hope you find it helpful.

Uel Butler,Chief Executive, DFC

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Essential Guide to Financing Company Vehicles

Personal Message

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To buy or to lease? When it comes to business vehi-cles, it’s an important question. If you’re buying, do you pay by cash, bank loan or do you opt for Hire Purchase?

What about other running costs you should factor into the purchase price, such as fuel consumption and servicing? What are they and how do you esti-mate them up front?

Perhaps you should follow Mr Getty’s advice and lease. You won’t own the asset, but do you really want a depreciating asset on your company balance sheet anyway? One you later have the hassle of disposing of, or selling. The reality is, the finance op-tion that is right for you will always depend on your circumstances.

That’s why we’ve created this guide - to simplify some of the issues surrounding vehicle finance - and give you the key information you need to make an informed decision. The report is divided into three sections. Each looks at a different issue you should keep in mind when purchasing company vehicles.

In Section 1 we look at the ‘Whole Life Costs’ of run-ning a company vehicle. To calculate the total costs of operating company vehicles, you need to consid-er more than just the purchase price. Calculating ‘Whole Life Costs’ is the only accurate way of assess-ing the true cost of running a vehicle.

ESSENTIAL GUIDE TO FINANCING COMPANY VEHICLES


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Section 2 explores the types of finance available and helps you decide which is right for you. Knowing what form of car finance is best value for money, given your unique set of circumstances, can have a significant impact on the overall costs. Purchase and leasing are the most popular options and these are the ones we’ll look at. By looking at the pros and cons of each, you’ll have a better idea of which is best for you.

Section 3 is all about choosing a provider who can best meet your needs. It’s difficult for many SMEs to have all the knowledge, skills and time necessary to optimise management of company vehicles. This is where the support of a good Vehicle Management Company is invaluable. In this final section we will give you some useful pointers to keep in mind when doing your research. We’ll also give you details on what our company, DFC, can offer. If you are inter-ested in a free consultation with us, it’s here you’ll find all the details.

Regardless of which type of finance you choose, an educated driver can always get a better deal. So let’s begin…

If it appreciates, buy it. If it depreciates, lease it Billionaire oil tycoon J.Paul Getty

Being in a position to accurately estimate the total costs of driving your company vehicle or fleet will help keep your business costs in control. This is why it pays to do your research, making sure you are comparing apples-to-apples.

To calculate the total costs of operating company vehicles you need to consider more than just the purchase price. Many small businesses only focus on capital costs of acquisition. Others account for fuel consumption but don’t factor in depreciation. Yet according to research by CAP Automotive, de-preciation will cost the typical motorist three times as much as they spend at the petrol pump.

Depreciation Did You Know? Many drivers assume the cost of filling up is the biggest motoring expense they face, but in fact it’s depreciation. The drop in value from depreciation varies between makes and models, but typically a new car will lose over 50 per cent of its value after three years. Although this is a “typical” assessment of depreciation, there are many factors that play a part in determining how fast your vehicle will lose value. This includes the make, annual mile-age, vehicle condition and running costs.

A useful online tool you can use to find out the depreciation of up to four different vehicles is the ‘What Car?’’ Depreciation Calculator. This gives an instant visual representation of the depreciation sustained in the first four years of a vehicle’s life.

Buying a used vehicle will lessen depreciation, but usually increases other whole life costs, all of which need to be considered.

Consider ‘Whole Life Costs’


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There is arguably no better way to manage depre-ciation costs than with Business Contract Hire (also known as leasing).

This is because your monthly payments are primar-ily based on the difference in value between the brand new vehicle when you take out the lease and its residual value when you return it.

Residual value is the estimated value of the vehicle at the end of the contract. This means at the end of the lease, usually 36 months later, you simply hand the car back without having to worry about depreci-ation or resale.

Costs you need to keep in mind when purchasing a company vehicle include the following:

• Depreciation.• Reduction in your credit worthiness for other

purchases/loans.• Fuel costs.• Interest you may have lost from savings.• Costs of incidental repairs such as broken wind-

screens and wing mirrors.• Vehicle tax.• Scheduled and predictable servicing costs.

What Car? Depreciation Calculator of a Vauxhall Insignia


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• Interest incurred if the car was bought on credit. • Insurance.• Breakdown cover.

If you decide to sell at a later date you‘ll also have to add in…

• Selling/vehicle disposal fees - e.g. costs of adver-tising.

• Risk of being undercut.

Time & Stress Those are some of the financial costs of operating company vehicles but the real headache for many business owners is in the time and hassle it takes to manage their company vehicles, particularly if operating a fleet.

Time spent…• Co-ordinating and arranging road tax renewals.• Dealing with accidents and recovery.• Arranging scheduled servicing appointments.• Dealing with unexpected maintenance issues.• Shopping for insurance.

And if you later decide to sell, add to that…• Time spent meeting, negotiating.• Stress.• Worry of being undercut.• Other administrative time from disposing of your

vehicle- e.g. transferring ownership, cancelling insurance etc.

All these interruptions to your working week can be a real headache for business owners, or Financial Directors who want to use their time and energy to focus on the bigger picture.

There are many advantages to buying or leasing company vehicles, including benefits to employees and the boost in your company’s image. However, to make it truly cost-effective you will want to finance your vehicles in the most suitable way. Knowing what form of finance is best will have a significant impact, on the short term and medium to long-term costs, of driving your new vehicle.

Purchase and leasing (also known as Business Con-tract Hire) are the two most popular vehicle finance options. So let’s explore which could be right for your business.

Option 1 - Purchase with cashAdvantages

• You own the vehicle, so if you’re the type of per-son who wants to customise your car or van, you can.

• No monthly repayments to worry about.• Any vehicles that belong to your business will be

treated as assets on your balance sheet.• You can push for a ‘cash discount’.

Disadvantages • Risk of wrong dealer advice – dealer may offer

you what he wants to sell at that time, not what is best for you.

• You must pay the full cost upfront which could mean spending savings and losing interest.

• Investing in an appreciating asset may be a smarter choice, if you can also afford to lease your vehicle on a monthly plan.

• The responsibility of ownership means you must organise the car’s insurance, maintenance and repairs etc.

Decide on the right type of finance for you


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• If you need to keep cash within the business, then buying outright isn’t the best option as your cash-flow will be affected, particularly if you require several vehicles.

• No independent advice on CO2 Emissions, Tax and your P11D.

Option 2 - Purchase with a bank loan Advantages

• This way you can spread the cost over time but still get instant ownership of the vehicle. So it’s a good option if you want to own the car outright.

• You can customise the vehicle if you choose.• A bank loan can make more sense when interest

rates are low.• You can still push for a ‘cash discount’ with the

car dealer.

Disadvantages • You are using up your own bank credit lines.• The cost of credit varies widely. The headline

rate isn’t necessarily what you’ll get - it can vary depending on your credit-worthiness.

• As with cash, you risk the dealer offering you want he wants to sell at that time, not what’s best for you.

• As with cash, you bear the brunt of any depreci-ation.

• Although it’s tempting to go for longer loan peri-ods with smaller monthly payments, you’ll pay a lot more over time through interest if you do.

• You must compare loans carefully. The annual percentage rate (APR) is the easiest way to work out how much a loan will cost you over its life-time.

• As with cash, no independent advice on CO2 Emissions, Tax and your P11D

Option 3 - Hire Purchase (HP) With a Hire Purchase (HP) agreement, you’ll normal-ly pay an initial deposit of between 10% and 30% of the vehicles value. You then pay off the balance of the full price in monthly instalments. When all payments are made (usually after a period of two to five years) the HP agreement ends and you will own the vehicle.

Advantages • Once you’ve made your final monthly payment,

you’ll own the vehicle, so if eventual ownership is important to you this could be a good choice.

• You’ll be able to drive a vehicle you may not have been able to buy outright.

• Flexible repayment terms (usually up to five years) can help fit your monthly budget. For instance, if your disposable income is likely to decrease over the agreement term it could work well.

• Fixed interest rates mean you’ll know exactly what you’re paying each month.

Disadvantages • As with a bank loan you are using up your credit

lines.• If you choose longer loan periods, with smaller

monthly payments, you’ll pay a lot more over time through interest.

• In a few years, the car’s value could be worth less than your remaining payments due to deprecia-tion.

• HP can prove a lot more expensive than a bank loan.

• Servicing often costs extra.• Monthly payments may be higher than other

finance options, such as leasing (as you’re paying off the full value of the car).

• You won’t own the car until the final payment is made, which means the car can be repossessed if you default on payments.

• You won’t be able to sell the car without settling the finance.

• You need a good credit rating to get HP deals with lower interest rates.

Option 4 - Business Contract Hire /Leas-ing CompanyBusiness contract hire or vehicle leasing is the most popular way of hiring a business vehicle, with over half of all new company cars funded in this way.

It’s a simple process, you choose the vehicle and it’s ordered for you. Payments are made monthly over an agreed period of time (often 36 months). At the end of the term, you return the vehicle and have nothing further to pay, provided the vehicle condi-tion is in line with British Vehicle Rental and Leasing Assocation (BVRLA) guidelines and hasn’t exceeded the agreed mileage.

The monthly payments are worked out using the difference between the cost of the new car and how much it will be worth when the lease ends.

Vehicle purchase price

[minus]

Residual value

[divide]

Number of months of lease

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Advantages • Drive away in a car that might otherwise be out

of your price range which can greatly enhance the image of your business.

• You can drive a brand new model every two or three years, which means you’ll never have to worry about the car being out of warranty.

• Hassle free: for an additional monthly fee, you can ask your dealer to take care of nearly every hassle associated with vehicle ownership. This can include servicing, maintenance (including tyre replacements) and repair packages so you’ll have no unexpected lump fees. It can also in-clude breakdown rescue cover and replacement vehicle cover in the event of a breakdown. Not all Vehicle Management Companies do this so it’s important to check (DFC can do all of this for you).

• Tax Advantages: as you don’t own the vehicle it can be classed as a business expense, and can be deducted from any profits to reduce your overall tax bill. And because vehicle leases don’t have to be shown on a balance sheet, your company’s liquidity ratio, gearing and return on assets can be improved.

• Low initial payment: in many lease agree-ments, only a small deposit is necessary, usually amounting to 3 monthly payments.

• Low fixed monthly repayments: On average between 35% and 55% less costly than car loan repayments. Low payments mean increased cash-flow, leaving you to invest in other areas of your business.

• Leases can be between 12 and 48 months, which allows the fleet to respond to changes in staffing requirements or other market conditions effi-ciently.

• Gives flexibility in responding to changes in Corporate Social Responsibility (CSR) guidelines


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or legislation, by switching fleet vehicles to more fuel efficient models.

• No hassle of re-sales. You don’t have the worry of selling or disposing of your car at the end of your contract.

• No depreciation worries.• Save serious amounts of time on vehicle admin-

istration.• Up to date mileage reports keep you in control

of excess mileage. This means flexible contracts - you can adjust your mileage up or down and avoid excess charges. Again this will depend on your Vehicle Management Company, at DFC we do this but make sure you check this with other companies to avoid excessive charges).

Disadvantages • Be aware of early termination costs (find out

what they are from your Vehicle Management

Company). • No matter how long the lease you won’t own the

car at the end. So if ownership is important to you or you want to modify the vehicle, this will not be the best option.

• It’s important to agree with your Vehicle Manage-ment Company what the expected annual mile-age will be. If you do more miles than arranged in your agreement, you can be charged excessive mileage charges (at DFC we give regular mileage reports and flexible contract terms, so you can increase or decrease payments throughout the lease period depending on your mileage).

• Fair usage: vehicles must be returned in a rea-sonable condition. Excessive wear and tear will impact the final costs. Standard wear and tear is allowed though, so make yourself aware of what is considered fair wear and tear (see BVRLA guidelines).


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In this final section we’ve outlined some pointers to keep in mind when you are deciding on a deal-ership or Vehicle Management Company. We’ll also give you an overview of what our company, DFC can offer, with a focus on our most popular option for business owners: Business Contract Hire. And if you’re interested in a free consultation with us, you’ll find all the details at the end of this section.

Tip 1Consider the purchasing power of your dealershipRemember, even with Business Contract Hire the vehicle is still being sold; it’s just being sold to the Vehicle Management Company and not you. So purchasing power matters. At DFC we purchase thousands of vehicles each year. That means we are experts in negotiating substantial discounts with vehicle manufacturers. We can pass these savings on to you in the form of competitive rates.

You also benefit from the advantageous rates that we have negotiated with our suppliers for parts and accessories, ensuring we continue to keep your costs down.

Tip 2 Make sure there aren’t any hidden chargesWe believe the spirit of vehicle management is a fixed monthly payment and no hidden extra charges to be paid at the end of contract. We are committed to managing contract costs such as over contract mileage, refurbishment and termination costs dur-ing the contract period.

Choose the provider who can best meet your needs


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Using our sophisticated forecasting system, we can predict your end of contract mileage, which allows us to work with you to manage your contract pa-rameters.

Tip 3 Consider the flexibility of your Vehicle Management CompanyShould your contract situation change, i.e. increase in mileage, early termination or contract extension, come and talk to us. At DFC we believe in building long-term relationships with our customers. We understand there may be some contract flexibility needed to ensure that we maintain our strong rela-tionship.

Also consider what you might want to do at the end of the contract. With DFC you have a number of options; return and collect your new vehicle, ex-tend the contract for 3, 6 or 12 months or purchase the vehicle for family or friends.

DFC’s relationships with major funding partners allow us to offer various finance options to suit your specific business and personal needs. The term of the contact can be tailored from 1 year through to 4 years.

Tip 4Consider whether or not you are getting independent advice DFC is not a franchised dealership. As an inde-pendent Vehicle Management Company we are not tied to any particular funder or manufacturer. This


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means we can search the entire marketplace to find the right vehicle for you and your budget require-ments. We are trusted by our customers to provide impartial advice and to guide them through the ve-hicle selection process, including a detailed analysis of “Whole Life Costs”.

Tip 5 Consider how much ‘hassle’ the Vehicle Management Company can removeThis varies from one leasing deal to another, so it’s important to check. We’ve outlined below some more of the ways we go about saving you serious time and hassle at DFC.

Personal serviceFirstly, with DFC you will get real personal service. We are an owner managed business and every customer matters to us. We enjoy getting to know other business owners and establishing great long-term relationships. You’ll find the directors working in the business, or out with customers every day. We are known for being approachable and for giving straightforward and useful advice. We encourage all business owners to take up the valuable offer of the free consultation with us. People tell us the free advice really does help them cut costs.

Management of maintenance and servicingWe are unique in our industry, in providing a One Call Operations Department, 365 days a year 24 hours a day. Essentially we take all the hassle away by taking full responsibility for managing your vehi-cle in one call. This includes:

• One call for all servicing, recalls, warranty, tyres, breakdowns and accidents.

• 24 hour/365 driver helpline.• Convenient on-line service booking facility.

All aspects of vehicle maintenance and administra-

tion can be taken care of by DFC, freeing up your valuable time. This includes routine servicing, tyre and brake replacement, warranty issues, manufac-turer recalls and breakdowns. We also facilitate the provision of courtesy vehicles for routine servicing and breakdowns, to ensure that your driver down-time is minimized and your business is not disrupt-ed.

Vehicle administration timeAt DFC we have developed a bespoke system to re-move the burden of all vehicle administration. This includes: Invoicing, Maintenance, Vehicle Purchase, Disposal, Traffic Offences, Safety Recalls, Warranty Issues, Cherished Transfers, Foreign Travel Authori-sation, Road Fund License Renewal and MOT.

Saving you time, saving you money.

BOOK YOUR FREE CONSULTATION

WITH US


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For over 25 years we have supplied, funded and managed vehicles for the business com-munity in the UK and Ireland. We know meeting up with us can save you time and minimize

your vehicle costs.The free consultation we are offering involves a detailed cost analysis, specific to your busi-

ness, to find out whether or not Business Contract Hire really is the best option for you.

During the consultation we will discuss your budget, what your current circumstances are, and find out what exactly you are looking for. You will learn about vehicle “whole life costs”

in more detail and we will examine these with reference to the specific circumstances of your business.

Whether or not Business Contract Hire is the best option for you, we will explain how you can cut costs, save time and increase your business bottom line profit by making efficiencies

in your vehicle management practices.

If you are a business owner please claim your free consultation by calling us on 028 9073 4222. We are confident we can find a solution that will result in both cost and time

savings for your business. We look forward to meeting up, to get to know you and find out more about how we can help your business.

CALL 028 9073 4222

Essential Guide to Financing Company Vehicles

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