Financing your BMW company car

Car finance advice
Company car finance for the BMW 3 series (The Car Expert)

This article is brought to you by BMW UK.

For decades, many jobs have had a company car as part of their salary package. This could either be because the job requires the use of a suitable car, or because it is advantageous for the employee’s tax purposes.  In the past, a company would purchase or lease a large number of vehicles and then simply allocate them to employees. Sometimes the employee would get some input as to the type of company car they wanted, sometimes not.

Most companies no longer directly provide a vehicle for employees, but instead provide a ‘company car allowance’ as part of the employee’s salary package.  Sometimes the employer will impose restrictions on what sort of vehicle the employee can choose for their company car, but sometimes the employee is free to choose whatever they like.

The net financial position for the employee is usually equivalent to simply being given a car, but they can now choose how to spend this allowance on a car of their own choice and which suits their needs best. As a result, manufacturers like BMW have tailored car finance packages specifically designed to appeal to company car drivers.

Company car finance options

For company car drivers, there are generally two main choices of car finance from BMW: Personal Contract Purchase (PCP) or Personal Contract Hire (PCH). The two products have many similarities but a few important differences. Here we will explore these differences and explain how they may affect how you choose to finance your company car.

Personal Contract Hire

Contract Hire is a lease, rather than a purchase product, so you are essentially renting your BMW for the period of the agreement. The monthly payment will depend on the price of the vehicle, any up-front payment you want to make, how long you want to run the finance for (usually two to four years) and your annual mileage.  Your annual road tax (if any) is also included, and you have the ability to include servicing and maintenance within your monthly payments.

Contract Hire is very simple, and particularly good if your company car is predominantly or exclusively for business use. If you are able to claim any VAT on the car (talk to your accountant), then Contract Hire is usually the cheapest way to drive a new BMW. Because there is a VAT component, a Contract Hire agreement can only be taken on a VAT-qualifying vehicle (new car or something like a demonstrator, rather than a pre-owned car where the VAT has already been paid).

At the end of the agreement, you simply give the car back to BMW Finance. You will be charged for any excess mileage or damage to the vehicle, or if you fail to follow the car’s service schedule.

BMW Select – Personal Contract Purchase

BMW Select is the name that BMW Finance gives to their PCP finance product.  We have discussed how a PCP works previously, and it remains the preferred choice for most company car drivers if the car is going to be for predominantly personal use. There is no VAT component, so you can choose BMW Select for new or Approved Used BMW.

Once you have found a new or used BMW that you like, you choose how much you want to pay up front (including any part-exchange, if you want to trade in a car), how long you want to run the finance for (usually two to four years), and what annual mileage you expect to cover. You will see that the above is all very similar to a Contract Hire agreement, and that’s because they are both calculating the same thing – how much your car be worth at the end of the agreement, as this will determine the payments.

BMW Select is a purchase product rather than a lease, so instead of paying monthly rental payments, you are paying off a chunk towards owning the car (in housing terms, it’s like a mortgage payment instead of a rent payment).

Over the course of the agreement, you are paying off the car’s depreciation and at the end of the agreement you have a remaining amount outstanding. This amount is called the Guaranteed Minimum Future Value. You still owe this amount to the finance company, and you have three choices for how you settle this and end the agreement:

  1. Give the car back to BMW Finance. Essentially, this means that you have treated your PCP just like a Contract Hire. Similarly, you will be charged for excess mileage, damage or incomplete service history.
  2. Keep your car. You will have to pay the remaining finance outstanding (the GMFV), as you have only paid the depreciation. This is usually up to half the total value of the car.
  3. Part-exchange your car. You still owe the GMFV amount, but the car may well be worth more than this figure. If you part-exchange your car on another new or used car and it is worth more than the GMFV, the dealer will settle your GMFV and you can use whatever’s left towards your next car.

Summary

If you are not claiming VAT on your company car, then most drivers will tend to choose a PCP like BMW Select over Contract Hire. It offers more flexibility (used cars are eligible if you don’t want a new car), gives you more choices at the end of the agreement – including the option to buy the car outright – and is usually better if you want or need to change your car before the end of the agreement.

A BMW Finance representative can discuss your needs and provide you with specific quotations for both BMW Select and Personal Contract Hire agreements on your chosen vehicle.

Disclaimer

Most car finance agreements in the UK are regulated by the Financial Conduct Authority, and anyone involved in the selling of car finance must be accredited by the FCA. You should always consider the terms and conditions of any agreement carefully before taking out any form of car finance, as you are making a substantial ongoing commitment and there may be significant costs if you change your mind or are unable to meet your commitments at a later date.

Stuart Masson
Stuart is the Editor of The Car Expert, which he founded in 2011, and our new sister site The Van Expert. Originally from Australia, Stuart has had a passion for cars and the car industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.

9 Comments

  1. richoeyes

    excellent article Stuart!

  2. Hi Stuart,

    As a company we entered into a PCH agreement with SKODA at the start of September this year for a new employee who was going to be on the road. Within 2 months, it wasn’t working out and we no longer need the car. I have already contacted the finance company, and received a figure for the early termination cost, but we are keen to try and avoid this if possible. We’ve been looking into lease transfer, and although we are eligible, I am having a lot of trouble finding another company to take over the lease. Can you recommend any channels we can use to try and get another company to take the lease, or possibly if there is another alternative we haven’t thought of for getting rid of the car.

    Hope you can help :-)

  3. stuart

    Hi Kate. I’m not familiar with any lease transfer channels, and I would proceed with caution as you may not be able to completely relinquish your obligations to the finance company. If you have any other cars in your fleet, you might be able to terminate one of those early for a lower cost than this vehicle – as it’s only three months old, the termination costs will still be very high.

  4. Hi Stuart,

    So glad I've come across your site. I'm only writing this to express my anger and frustrations with the experience I've had with a car dealer and finance company.

    I bought a car back in December 2012, with in a week of having the car the EMU light came on so I went back to them, they changed a sensor, with in another week the light came back on again but by this time I had noticed other faults i.e. the wing mirror did not work, a panel under the radiator was hanging off and since it had a couple of washes I noticed the paint work looked like wire wool was used on it.

    When I called the dealer back to say the light came back on we arrange for the car to back in, when i got there he said they did have anyone in to look at the car and to come back the following tuesday, my blood boiled and left in anger. I had to arrange time of work for nothing and to go back a gain.

    Anyway to keep it short; After time and a lot of complaining they put the onus on me to prove the faults were there before i bought it….even the financial ombudsman was a waste of time.

    Feeling totally cheated a complete fool….I cant begin to tell you what was going through my head, if i was every close to being a criminal for revenge it would have been then..

    I looked up VT this would be an option to give the car back. When I called they said I wouldn't be able to use them again, which was fine, he also said a mark would be put on your credit file making me think it would affect my credit score. (sounds like scare mongering to me) so I declined to VT on the basis of there low life scare mongering tactics and realising they would charge me the faults that were there before i got it.

    I've just received a statement of payment for the year stating on final payment a £60 vat charge would be added.

    This is the first time I've used HP and will be the last, to me its a legal cone.

    As this is a public site I have hesitation in naming the companies.

    Karl Smith Car sales of Blackpool — "ROGUES"

    Motonovo Finance.

    Thanks

    James

  5. stuart

    Hi James. It may still not be the right move for you, but a VT will not affect your credit rating (see here for more information). The issue you may have is damage or mechanical problems, if you can’t prove they were there when you brought the car, as that would remove your ability to VT the car.

  6. Hi Stuart VWFS ( SKODA Contract Hire) would arrange a ‘novation’ of the contract provided it was to a limited company who they would accept via their own internal underwriting, they charge a fee (about £150 I think) and then the contract is completely passed over to the new hirer

  7. Hi Stuart
    I just want to warn your readers about a high pressure sales tactic that I was subjected to at BMW today. When picking up my new car, although I had already refused financing and was paying cash, I was told that I had to see the finance guy before I was allowed to pay for and drive away my new car. I explained that I didn't want to but was told that it was a 'legal requirement' under the rules of the Financial Conduct Authority for them to explain all their insurance products. Knowing a bit about the FCA through my work, I challenged this and the young man went away to get someone more senior (and bigger). He was quite aggressive in pushing GAP insurance tyre/wheel insurance and one other that I don't remember. He kept saying it was a legal requirement as a scare tactic. I maintained that I did not want any financial products, and he sent the young chap back to get me to sign something to verify that I had been offered these insurances (also a 'legal requirement').

    I would have happily signed a piece of paper ( having already signed 6 to get my car) but he wanted to put my personal details onto an online database. Knowing how unscrupulous the insurance industry is at selling customer details, I refused to allow this, and he said he would have to get his boss again. I was then told his boss was seeing someone else so I would have to wait. I was not allowed to pay for my new car and leave, and was getting very frustrated.

    The guy was so long that I had time to look up the Financial Conduct Authority on my phone and call their helpline, explain the situation and ascertain that these two salesmen had been telling a pack of lies. When Mr Big eventually returned he quickly realised that he had been rumbled and couldn't get me out of there quickly enough.

    Anyone who is not familiar with the FCA might easily fall for such a tactic, so please warn your readers.

    I had always had high regard for the BMW brand, so let's hope this is just a case of two rotten apples rather than national sales policy.

  8. stuart

    It’s unfortunate that this still happens in the car industry, and to be fair to BMW, it definitely happens across all brands.

    Dealerships do have a legal duty of care under FCA regulations to make you aware of all insurance products that they offer, for your benefit and theirs (eg – so you can’t decline an insurance product, have an accident which would be covered by that insurance and then claim you were never offered it, which would make the dealer liable for the entire value of the insurance cover). However, many dealers use this as an excuse to try and sell the insurance products once again (because they make loads of money on every sale). Having the duty of care signed off in writing does verify it, and it is audited by the FCA. You do have the right to decline signing the form, but there should be no need to do so if it is handled properly.

    The key point is that the rules are designed to promote transparency, not scare tactics. You should report the dealer concerned to BMW HQ, as they should take the matter seriously.

  9. Its fantastic option that we can hire or buy a brand new BMW car through BMW car finance. Every person dreams to own a BMW car and its good that your company is providing car finance in form of business car.

What are your thoughts? Let us know below.

Lost Password

Share
Share
Tweet
Stumble
+1