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What is Finance Lease?

What is Finance Lease?
4th December 2019
What is Finance Lease?

What it is: A way of obtaining use of a vehicle by paying a monthly rental.

Who is it popular with: VAT-registered businesses operating commercial vehicles (vans).

How long it lasts: Typically, between 24 and 60 months

Is it available with maintenance: Yes

Additional points:

The monthly rental is determined by the initial cost of the vehicle (excluding VAT), the period of the lease and the residual value (sometimes called the balloon payment), plus interest.

Although you never take ownership, at the end of the contract a final rental is payable.

Usually, this means the vehicle is sold and a proportion of the proceeds of the sale are returned to the lease holder. In most cases, the customer receives 98% of the sales proceeds, while finance company retain 2%. Or you can hold on to the vehicle for a small annual cost, this is referred to as a Peppercorn rental.

On this agreement, you take on the residual value risk, so although there are no excess mileage charges. If you are setting a final rental, you need to consider the usage over the term to ensure that the asset is worth enough to cover the amount, alternatively you can opt for a fully amortised agreement with no final rental.

It is your responsibility to maintain the vehicle in accordance with the manufacturer guidelines, additional maintenance packages are available.

This is a hire product so you will not own the vehicle.

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