Solution for capital requirements 2

Finance agreements are not just ways for us to purchase items we can’t afford to pay for with cash, or don’t want to wait and save up for. While a lease or a hire purchase agreement can see you driving away in a new car with little or no deposit, there are other advantages to such finance agreements. The most common form of lease or hire purchase agreement is for a vehicle, as this is something most of us will finance at some stage in our lives, and there can be a better option than a personal loan.
Features and Benefits of a Lease
Leasing allows you to drive a bigger, better, newer vehicle more often, with a smaller financial commitment than a personal loan, because you are only paying for the portion of the car you are using during the lease term. Typical features of a car lease include:

• A term between three and five years. You can choose the term of your lease based on the financial commitment you want to make each month, and how often you want to upgrade your vehicle.
• Initial costs. Before you can drive away in your leased vehicle you will often need to pay the first month’s rental amount, and the on road costs. While the on road costs can be added to the finance amount in some cases, they include the stamp duty and the registration fees.
• Repaying only what you use. The monthly repayments of a lease are calculated on the vehicle’s depreciation during the lease term.
• Must have a balloon. The balloon payment reflects what your vehicle is expected to be worth at the end of the loan term, so the sale of the vehicle should pay out your balloon. With a lease you must set a balloon amount, for example a 3 year lease may have a 45% residual balloon, a four year lease could have a 35% residual and a 5 year lease may only be able to have a 25% residual.
• Higher insurance costs. The cost of insuring a leased vehicle as opposed to one you own outright can be higher.
• You can keep the vehicle. At the end of the lease term you are able to make an offer on the vehicle to buy it, and this amount will need to come from your pocket.
• Vehicle value. You may also have to pay an amount out of your pocket if there is a difference between the residual value and the market value of the vehicle at the end of the lease term. This could be due to unexpected wear and tear on the vehicle, or higher miles which diminish its value.
• Limited miles. A lease may impose a limit on the number of miles you can travel during the lease term and the more miles you drive, the more expensive your lease can be. In some cases there are additional charges payable at the end of the lease if you go over the limited miles. At the same time, the more miles a vehicle has done, the lower its resale is so even if your lease has unlimited miles, keep your residual value in mind.
• Tax benefits. You are able to claim the monthly lease repayments as a tax deduction, based on the percentage of business use the car is getting. You can also claim the ongoing running expenses of the vehicle such as fuel and maintenance.

Features and Benefits of a Hire Purchase
When you enter into a hire purchase arrangement, your financier is agreeing to purchase equipment – or a vehicle – on your behalf, and then hire it back to you over a set term. This means you have the use of the vehicle during that term, but don’t own it. Other features of a hire purchase include:

• A loan term of between three and five years. As part of the hire agreement you can choose how long you want to hire your vehicle back for.
• You own the vehicle at the end. At the end of a hire purchase agreement, once you have made your final payment and any balloon payment you implemented, the vehicle is automatically yours.
• Upfront costs. When you first enter into a hire purchase you will need to make an initial loan payment and pay a deposit, stamp duty and registration fees. In some cases you can negotiate that some of these fees be added to the hire amount.
• Full monthly repayments. The monthly repayments due on your hire purchase will be calculated on the total amount of the purchase price, plus interest charges, duties and other loan fees.
• Do you want a balloon? With a hire purchase you can choose whether or not to have a balloon payment due at the end of the loan term. Having a balloon payment will lower your monthly repayments, but this amount will be payable at the end of the term, and you need it to correlate to the market value of the vehicle at the time.
• More expensive insurance. When you are hiring a vehicle rather than buying it outright, your insurance company can often impose higher premiums.
• Keep, sell or refinance your hire purchase. At the end of the hire purchase term you can keep the car after you make your final payment and pay out any balloon. You can also sell or trade in the vehicle, but the risk of dropping value now become yours. Or you can refinance the balloon amount over a new term if you want to keep the vehicle for a few more years.
• Unlimited miles. There are no limits to the miles you can put on the clock with a hired vehicle, but just keep in mind that the more miles the vehicle has, the lower its value will be at the end of the hire term.
• Tax benefits. With a hired vehicle you are able to claim depreciation of the purchase price, plus the interest charges on your loan, and the ongoing running costs of the vehicle, based on the percentage of business use.

Using a lease or hire purchase is pretty much like a buying your house using a home loan. It can have advantages, but it does cost money!
 http://businesstalky.com/2011/02/finance/lease-vs-hire-purchase-which-is-the-best-option/
culled from