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Balloon Payment
Once again, I hear you ask, “Why are they babbling on about balloons when talking about finance?”
Unfortunately, this balloon has nothing to do with the kind you’d find at a kid’s birthday party (sorry to disappoint).
The balloon payment, formally known as the Optional Final Payment, is one of those terms many have heard of but often don’t fully understand. Simply put, it’s the final amount you’d pay if you want to own the car outright at the end of a PCP agreement.
While a larger balloon payment might make your monthly costs more appealing, it can leave you with a less-than-pleasant lump sum at the end—one that may even make ownership unaffordable. This is why many people choose to hand the car back instead.
So, how is a balloon payment calculated?
The dealer must disclose the optional final payment figure before you take out a PCP deal. This means there shouldn’t be any unexpected surprises at the end of your agreement (unless, of course, you terminate your contract early—then equity comes into play).
The balloon payment is also known as the car’s guaranteed minimum future value. This figure represents how much the car is expected to be worth at the end of your agreement, calculated using industry guides to predict depreciation.
Remember though, the interest you’re paying on a PCP covers the full cost of the vehicle—including the balloon payment—even if you don’t end up purchasing the car.
Business Contract Hire (BCH)
One of two types of Contract Hire (the other being Personal Contract Hire or PCH), BCH is designed for businesses looking to lease a vehicle—or even a fleet of vehicles—for a fixed monthly cost.
This allows companies to drive the latest models without the expense of ownership.
To take out a lease on BCH, you’ll need to be a Sole Trader, Partnership, PLC, or Ltd Company.
And what about VAT?
BCH rates are advertised excluding VAT, while PCH rates include VAT. Why? Because businesses can reclaim up to 50% or even 100% of the VAT on their lease, depending on the vehicle’s usage. It’s a tax-saving win for businesses.
Benefit In Kind (BIK)
It might sound like a lovely finance term, but let’s cut to the chase—a Benefit in Kind is a contribution you’ll have to pay if you use a company car for personal use.
In other words, it’s more money out of your pocket.
Not so lovely-sounding now, is it?
BIK is a tax charged on perks or benefits that an employee receives on top of their salary—like a company car they also use privately.
But how is it calculated?
- Multiply the car’s P11D value (more jargon, I know, but don’t worry, we’ve got resources to explain that too) by the BIK percentage banding.
- Multiply that figure by your tax band (20% or 40%).
Interested in diving deeper into company car tax? We’ve got plenty of resources to help you.
Broker
Mum, I made it!
That’s us – Carparison is a broker. Well, a leasing broker, to be exact.
The aim is to take the leg work out of finding your new car, van or commercial vehicle to lease.
Our mission? To take the legwork out of finding your next car, van, or commercial vehicle to lease.
As brokers, we scour the nation (so you don’t have to), teaming up with funders and dealerships to track down the very best lease deals.
Then, we bring them all together in one place—making your search as smooth and stress-free as possible.