Most people believe that Commercial Hire Purchase is similar to novated lease, and while both of these products have similarities, both of these products also have many differences. Listed below are some facts regarding commercial hire purchase vs. novated lease.
What is Commercial Hire Purchase?
This commercial finance product allows the customer to hire a selected vehicle from a lender for a fixed tenure for a fixed monthly repayment plan. This product can also be called corporate hire purchase since this product is often used by companies, sole traders and partnerships. Other terms used for this product include Offer to Hire and Hire Purchase.
How Does Commercial Hire Purchase Work?
When a person opts for commercial hire purchase, the lender agrees to purchase the selected vehicle for the customer. After this the lender hires the vehicle back to the customer for a set tenure. During the tenure of the agreement, the customer can use the vehicle but is not the official owner of the vehicle. At the end of the contract’s tenure and after the total price of the selected vehicle has been paid, the customer gets the title of ownership of the vehicle.
What is a novated Lease?
A novated lease is an agreement between three parties that each play an important role in this type of agreement. The employer leases a car, pays for it and claims responsibility of the vehicle while the employee uses the vehicle and pays for maintenance or running costs of the vehicle if required.
The lender provides the vehicle and collects monthly payments from the employer towards the cost of the lease. If the employee changes jobs prematurely then he can take the vehicle with him, however all responsibilities of the vehicle will be reverted back to the employee immediately.
Commercial Hire Purchase Vs. Novated Lease
Novated lease is offered by companies to employees as part of salary packaging. Through a novated agreement, the employee gets to enjoy various benefits such as using a car with or without paying separately for running costs. Employers offer these agreements to employees since it allows them to offer attractive salary packages without adding to the real cost to company. In addition, by hiring a car on a long term basis the employer does not have to purchase a fleet of vehicles for his own company.
Depending on the type of contract opted for, the employee may have to pay for running costs such as fuel or these costs will be paid by the employer to the lender in one monthly payment. Employers and employees who opt for novated lease contracts have a lot of options; however buyers who opt for commercial hire purchase have limited options.