A Balanced Payment Plan offers a fixed monthly payment but unlike a Hire Purchase car finance agreement, where the interest rate is fixed, Balanced Payments offer a variable rate which tracks the changes in the Finance House Base Rate, LIBOR or Bank of England Base Rate, depending on what is specified in the agreement. As the relevant rate goes up or down over the period of the contract, so does the amount of interest you pay.
How does it work?
You pay an initial deposit and then the balance in fixed monthly instalments over an agreed term (24-60 months). At the end of the term any variation in interest rates is reconciled and will be settled as either a credit to you, or a charge. Other options available with a Balanced Payment Plan include a final ‘balloon’ payment which has the benefit of reducing your monthly payments by deferring an agreed element of capital until the end (traditionally linked with the depreciation of the vehicle).
Why choose Balanced Payments?
Rates are competitive, and Balanced Payments plans tend to be popular with sophisticated borrowers and investors with a good understanding of finance.
Things to consider
- You do not have the option to return the vehicle at the end of the agreement
- Any increase in interest rates will mean you pay more under the agreement
- The facility doesn’t offer the protection of the Consumer Credit Act
The benefits of Balanced Payment Plan
- Flexible – reducing interest penalty options for early settlement
- Low deposit – doesn’t tie up cash reserves
- Fixed monthly payment – perfect for budgeting
- Tax benefits – Tax allowances for business users
- Potential savings – save if interest rates fall
- VAT free – no VAT on payments
The minimum advance for an individual is £25,000, based on a business user declaration but any level is available for limited companies.