Don’t get caught out by hidden costs of finance

Simon Gray, of Credo Asset Finance, looks at the hidden costs of finance.

When buying vehicles on finance for business use, the type of agreement can make a huge difference to the total amount you may pay, especially if you terminate it early. Penalties that may be charged when settling early – by cash or part-exchanging, updating your vehicle – can be very large and not evident when you sign the agreement.

Whether your agreement is regulated by the Consumer Credit Act (CCA) is a key factor in how your early settlement is calculated. Things to know, consider and bear in mind are:

All limited companies and partnerships (four or more partners) that borrow money will not be regulated by the CCA.

Partnerships (three or fewer) and sole traders who borrow more than £25,000 will not be regulated by the CCA.

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Partnerships (three or fewer) and sole traders that borrow less than £25,000 will be regulated by the CCA.

Most consumers will be regulated by the CCA.

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Some high net worth individuals may not (but probably can be) regulated by the CCA.

It certainly is a minefield. So is the calculation of early settlement for a regulated deal but, in essence, it equates to a maximum of one month's interest penalty, not a payment, just the next month's interest element. For an agreement not covered by the CCA penalties can be hugely different. Most lenders charge the settlement as a percentage of outstanding rentals, typically 93% or more.

On a £20,000 loan at 8% APR over four years for example, settled after 12 months, the settlement on a regulated deal would be about £15,700. A typical non-regulated settlement may be as high as £16,700 – a difference of £1,000!

The moral is where you can engineer to receive a regulated finance deal, do so, look at the amount you might borrow, buy the vehicle in a partnership, not limited company if you run both or buy the vehicle in your own name and not a company. Obviously any of this applies only if you plan to settle before the end of the agreement.

An independent finance broker can guide you about the right way to finance a vehicle.

Credo Asset Finance is at 85 Yarmouth Road, Norwich, NR7 0HF. Telephone 01603 703180, email or visit the website at

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