Finance Lease – Business Users
What is finance lease?
Finance lease is a popular agreement for companies needing cars, vans or specific commercial vehicles where contract hire is not suitable. It offers flexibility and tax advantages to eligible companies who require one or more vehicles.
As part of a finance lease agreement you can choose to pay a rental that covers the entire cost of the vehicle, including interest charges, over an agreed period.
Alternatively, you can opt to pay lower monthly rentals with a final payment based on the anticipated resale value of the vehicle (otherwise known as the ‘balloon payment’).
Throughout the agreement, the vehicle remains the property of the leasing company. However at the end of the lease when the vehicle is sold the bulk of sale proceeds are returned to you the lessee as a ‘rebate of rentals’.
This type of agreement is only available to business customers – including limited companies, self-employed people and sole traders.
It is a particularly popular option for businesses. There are significant tax advantages and vehicle ‘rentals’ often reflect substantial fleet discounts and registration bonuses, paid by the manufacturer to the funder.
The key benefits of finance leasing:
- Fixed payments for the whole agreement
- Low up-front costs.
- Repayments often calculated incorporating substantial manufacturer fleet discounts
- Claim up to 50% of the VAT on cars and 100% on commercial vehicles (subject to being VAT registered)
- Flexible repayment structure can be tailored.
- No penalty charges for additional mileage or damage at the end of the agreement
Although you will not technically “own” the vehicle, you will receive up to 100% of the sale proceeds if the vehicle is sold to a third party at the end of the agreement.