Finance Lease is a method of funding a vehicle used by a business. It is commonly favoured for commercial vehicles and by VAT registered businesses, where Business Contract Hire may not be suitable. Cars can also be funded.
The business obtains the use of the vehicle by paying a rental each month. The monthly rental is determined by the initial cost of the vehicle (excluding VAT), the period of the lease term, plus the cost of interest. You can pay the entire cost via regular monthly rentals (referred to as a fully amortised Finance Lease).
At the end of the agreement, the business cannot take ownership of the vehicle. It must therefore be sold to a third party company and a proportion of the sale proceeds are returned to the lessee, or you may be able to extend the Finance Lease agreement by paying a nominal secondary period rental for each additonal each year (sometimes referred to as a peppercorn rental).
Most Finance Lease companies can offer a number of payment options to suit your cash flow requirements. You can lower the monthly rental costs by adding an optional final "balloon" payment rental to the contract. At the end of the Finance Lease agreement a rental equivalent to the "balloon" payment is payable. This is normally taken from the third party company sale proceeds and a proportion of anything left over is returned to the lessee, but please be aware that any potential shortfall risk will remain the responsibility of the lessee.
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