What is a Finance Lease?
Finance Lease offers a low initial rental and then fixed rentals thereafter. The monthly payments are determined by how much or how little you decide to allocate to the Final Rental (Balloon) at the end of the agreement, meaning you can tailor the payments to suit your cash flow. At the end of the contract the vehicle is sold to a third party (there is no option for you to buy) and depending on how much it is sold for you will either owe money on the Finance Lease or could be paid 98% of sale the proceeds.
Key points with a Finance Lease
- Contract lengths range from 12 to 60 months, If the balloon payment is refinanced this can run for longer
- Allows for accurate budgeting over the term of hire, check the interest rates when looking for Finance Lease
- For some VAT registered businesses, 100% of the VAT in the Rentals is reclaimable for vans and 50% for cars
- Vehicle is delivered to you and collected from you when you hand it back
- If the vehicle is sold to a third party for more than the Final Rental (Balloon) you will usually receive around 98% of the sale proceeds, if it is sold for less you will be liable to pay the difference
- Appears on Balance Sheet
Things to consider with a Finance Lease
- You will never own the vehicle
- Maintenance can be included in a Finance Lease
- Road Fund Licence is only included in the first year
- You may be liable to pay extra at the end of the Finance Lease if the vehicle does not sell for as much as the Balloon