Finance Lease is a popular funding option for commercial vehicles, vans or cars where Contract Hire is not always suitable or the best option.
Your business uses the vehicle while paying a rental rather than a repayment. The monthly rental is determined by the initial cost of the vehicle (excluding VAT), the period of the finance lease and the residual value (the estimated future value of the vehicle at the end of the finance lease period once depreciation is taken into account), plus interest.
Finance Lease (FL) is often used for LCVs (light commercial vehicles) and is a fixed term rental agreement where the vehicle remains the property of the finance company and you have the use of the vehicle. You will pay an initial rental followed by subsequent monthly rentals and sometimes followed by a larger final rental which will be based on the expected value of the vehicle. Rentals are subject to VAT.
Finance Lease (FL) differs from Contract Hire in that at the end of the agreement you must sell the vehicle to a third party. You (the Lessee) will receive a large proportion (usually 97.5%) of the sale price (less the final rental if applicable) with the balance of the sale proceeds (usually 2.5%) being paid to the finance company (the Lessor). If the agreement has a large final rental and the sale price is less than the final rental, you will be required to make up the difference.
You are obliged to dispose of the vehicle at the end of the vehicle finance lease period, so you can not own or buy the vehicle. If there's a possibility that you might need to change your vehicle early, you will be liable for high early settlement charges.
Its not a good choice if you want a way to lower your monthly rentals by including a final rental payment and you do not know what your predicted mileage will be. If you are concerned about the risk of loss of future value or depreciation, LeaseYourNewCar.Co.UK would not recommend this plan for you. It's not a suitable arrangement if you need to export the vehicle or use it abroad for extended periods.
The best van finance lease deals can offer a low initial outlay and fixed monthly rentals. The vehicle is on the business' balance sheet. You can have a choice of hire periods of from 2–5 years. Optional final large rental to lower the monthly rentals. Potential to share in any potential resale profit. Damage recharges are avoided as the vehicle although this will affect the future value of the vehicle. No excess mileage charges although this will affect the future value of the vehicle. VAT on the rental is reclaimable
Although you never take ownership, at the end of the finance lease contract a payment equivalent to the residual value is payable. Usually this means that the vehicle is sold and a proportion of the proceeds of the sale are returned to the lessee.
Most finance lease companies will offer a number of payment options to suit your cash flow. You can lower the monthly rental with a balloon payment at the end of the contract, or you can pay the entire cost in monthly rentals (normally referred to as a fully amortised Finance Lease), in which case you may be able to extend the finance lease with a secondary rental (sometimes called a peppercorn rental).
You must ensure that the vehicle is always comprehensively insured. You must pay any additional charges that you incur for example a parking fine or congestion charge on time. If you don’t, the cost and/or fine will be issued to the finance company who will invoice this to you together with an administration charge that they will levy. You must have the vehicle serviced and maintained by a main franchised dealer in accordance with the manufacturer’s recommendations and keep it roadworthy. If you do not service and maintain the vehicle, the funder will make a charge when the vehicle is returned as this will affect its value. You may add a cost-effective maintenance package which will cover routine servicing, maintenance costs and tyres, subject to fair wear and tear plus breakdown assistance to enable easy budgeting and give you fixed cost motoring. If you include a maintenance package please note the funder may decline to settle any charges if the total mileage on the agreement is exceeded. Failure to make payments in full and on time may result in the contract being terminated and the vehicle repossesed. Only enter in to an agreement if you are comfortable with the financial commitment and terms.