what is finance lease & how does it work? 

Finance lease is a non-ownership rental agreement that allows you to use a vehicle for an agreed period of time.

Finance lease requires you to put down an initial advance rental; this can be sometimes as little as your first monthly rental, followed by a fixed term and mileage consideration with contract options between 24 and 60 months, usually followed by a ‘final rental’ or ‘balloon’.

At the end of the agreement, any final rental that you have agreed on is paid to the funder, and the sale of the vehicle is normally used to cover this. you are also able to pay the final rental and enter a secondary rental period where you continue to use the vehicle. you may sell the vehicle pre- or post-payment of the final rental towards settling any outstanding finance. with a finance lease agreement, the hirer takes the risk and reward of the depreciation of the vehicle.

Although there are mileage considerations that determine the ‘final rental’, mileage penalties from the finance provider are not applicable, exceeding the mileage agreed will have an effect of the value relative to the final rental that could have an adverse effect upon sale or disposal.

what are the advantages of finance lease?

• Minimum capital expenditure
• Accurate monthly budgeting
• Improved cash flow
• Fixed monthly rentals
• No damage recharge as you are responsible for the disposal of the vehicle
• Reduced administration
• Commercial vehicles are up to 100% tax deductible
• Availability of refinancing the balloon payment (Exclusions apply to this option)
• No need to be VAT Registered
• Potential to keep the vehicle longer after lease expires (Secondary rental applies)
• Early termination is a possibility
• Finance terms from 24 to 60 months

what are the disadvantages of finance lease?

• You will never own the vehicle as the vehicle must be sold to a third party as the end of the agreement
• The responsibility of the vehicle disposal is down to the hirer along with associated depreciation risks
• Interest rates can vary on some contracts
• You must have fully comprehensive insurance for the term
• The hirer takes the risk or reward of the depreciation of the vehicle