Finance Lease

Finance Lease Explained

Finance Lease is for ALL business users who want to keep their monthly payments low, by spreading the payments over 3-5 years, you can ‘cheapen’ them even more by having a small end payment also known as ‘balloon payment’.

This type of Finance agreement is between the business, sole trader or partnership and the finance lease company, all finance lease agreements are subject to a credit search.

There is a lot of ‘inconsistent information’ given regarding the balloon/end payments, so let me tell you the truth…
The balloon payment MUST be paid then sold to a none related 3rd party.

Ways To Pay Your Balloon/End payment

  • Pay out of your own bank
  • Sell the vehicle and pay the balloon off
  • P/X the car or van where the ‘p/x monies’ pays the balloon off
  • Refinance the balloon
  • Hand back to the finance lease company – I would never advise customers to do this route, the finance companies sell the vehicle, usually at auction and whatever they get goes to pay the balloon payment off, if its short they ask you for the difference!
  • Once the end payment has been paid, you still do not own the vehicle as the vehicle must be sold to a ‘Non Related’ third party.
  • This is where the finance lease company would charge sale of proceeds on the value you sold the car or van for which currently can be between 2 and 10%, depending on the finance company.
  • There are a number of finance options to choose from with Finance Lease being the most popular one for small businesses. One of the main reasons Finance Lease is so desirable is that you can change your car or van for a new one without the large outlay of a big deposit.
  • Most ‘deposits’ or ‘initial payments’ can be as little as 1 month’s payment.

How Your Monthly Payments Are Worked Out

You state the expected annual mileage at the start of your contract, the finance lease company then works out the expected ‘residual’ value of the car or van at the end of the agreement, which will be your end payment. (Basically what they think the car or van will be worth for the age and mileage at the end of the contract).

The Finance Lease Company will minus this end payment and divide the remaining balance of the purchase price by the amount of months you wish to lease the car or van for.

Advantages Of A Finance Lease

  • Flexible deposits
  • Contracts that can run 18 months to 60 months
  • Bolt on Maintenance & Service packages – these include all servicing (in accordance with manufactures guidelines),tyres, batteries, exhausts and basically anything that is not covered under the warranty.
  • No annual mileage limitations.
  • No wear and tear charges.
  • Ability to claim a % of the VAT back, assuming your VAT registered make sure you check with your VAT advisor
  • You can show the car or van as an asset on your balance sheet.
  • Easier to obtain credit than on other finance agreements like Contract hire.

You can see why Finance Lease is such an appealing method of funding.

Compare Finance Leasing quotes at Compare Finance Lease Offers