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Loans - Is the credit crunch affecting your PCP?

As the credit crisis gathers speed and crunches down on all aspects of society as we know it, its consequences are being felt far and wide by all levels of the social system. Some of the ripples from the credit crunch are being felt in the car finance sector, here people in an attempt to regulate their finances and possibly save some money at the same time.

For some, the benefits of a Personal Contract Purchase proves to be the best financial option, whether it's the flexibility that it offers or maybe it's simply the prospect of low monthly payments that people pay attention to. The previous parts of this four part symposium tackled the merits and marrings of some of the popular car loan options; personal contract purchase, hire purchase and lease purchase (sometimes referred to as contract purchase). In this final part of the symposium the discussion will focus on contract hire, by making note of its credentials and possible benefits, those that are still pondering over which car finance option is the best for them will be able to make an informed conclusive decision.

So what is contract hire? Contract hire has 2 main clauses; firstly you will never own the vehicle and secondly the car is for your usage for a fixed term over a period that has been agreed by you and the hire company. With these two stipulations in mind one can begin to fully appreciate the benefits of a contract hire agreement. If you are never going to own the car what could the benefits possibly amount to? Usually the term for contract hire is capped at four years and in that time frame you need not worry about the car’s financial implications to you or your business.

The likelihood of a car suffering from detrimental wear and tear in its first few years are slim to none and this is one of the features that most businesses large and small alike are becoming increasingly fond of. By signing up to essentially ‘borrow’ a product for a set term you are able to take advantages of some of the tax benefits that come with non-ownership.

As long as your company is VAT registered, for taxation purposes your car arrangement with the hire company will be referred to as an ‘operating lease’ and in doing so highlights that your company doesn't stand to make any financial gains through ownership. The payments that are necessary to honour a contract hire agreement usually starts with a deposit. Depending on the value of the car monthly payments are calculated, following this calculation a deposit is required usually in the region of 3 monthly payments.

With the finances secured and the company’s financial capabilities established the car is handed over and you get to enjoy the vehicle secure with the knowledge that for the rest of the term your vehicle will be fully serviced and maintained, and that's not just the major components but also damages caused by general, fair wear and tear, that of course if you have taken out a ‘full maintenance contract’.

If however you have chosen a non-maintenance agreement then your finance provider is under no obligation to keep up with the vehicles maintenance; that would be down to you and your company if the car is in fact going to be used for business purposes. Most companies and individuals alike who opt for contract hire as their preferred car finance option are asked if the car’s mileage is likely to exceed 20,000 miles per year as answering yes to the question should lead to the finance company suggesting you opt for the ‘full maintenance’ contract.

This is heavily recommended for those looking to travel more than 20,000 miles yearly. Clearly if you do, having a roadworthy vehicle at all times is vital to you and/or your business and only a ‘full maintenance’ contract will afford you the peace of mind and hassle free motoring that you need.