What is Finance Lease?
What is Finance Lease?
Finance Lease is a very popular product especially when leasing commercial vehicles, you can either choose to pay the entire cost over the agreed lease period with no final balloon payment or the more common option, of lower monthly rentals with a final balloon payment. This final payment can then be re-financed over a further fixed period, giving you the option to spread the cost over a much longer period. Alternatively, the vehicle can be sold to a third party, after settling the final balloon payment, leaving any excess funds to help you fund your next vehicle.
The information below gives you a good idea of how the rentals are calculated and the benefits to you along with the points to consider about this product.
What affects the Monthly Rental Price?
A number of factors come into play when calculating the monthly rental for you and these need to be considered when thinking about which vehicle to lease. Our team are happy to discuss these in detail, we believe it important you make an informed decision that is right for you, not us.
Vehicle Purchase Price - This a big factor, the more expensive the vehicle, generally the more you can expect your rental to be, although strong residual values can sometimes buck this trend, resulting in a higher final balloon payment and subsequently, lower rentals. We source and negotiate the price of the vehicles ensuring we achieve the most competitive prices, and don’t worry, we only buy from the manufactures franchised dealers.
Residual Value/Final Balloon Payment – Unlike Contract Hire the vehicle does not simply get returned to the funder, disposal is your responsibility, although we can help with this. If you take an agreement utilising a final payment, then the funder will have set the final payment based on the contract term and mileage you choose, they’re the experts, so this will be realistic and usually less than the expected re sale value of the vehicle, subject of course, to any damage and the mileage of the vehicle.
Mileage & Contract Length – It is important to set an accurate mileage at the start of the contract, because the disposal of the vehicle is your responsibility. If you do more miles than originally stated within the contract terms, you will not be charged any excess mileage charges, BUT, if you are looking to clear the final payment with the proceeds of the sale, you may be left with a shortfall. On the flip side, should you do less miles then you anticipated, you may end up with some extra equity.
Maintained Contracts – With some funders, like contract hire, you can include the maintenance package, this includes; servicing, mechanical repairs, tyre replacement and comprehensive breakdown cover. Ideal if you do not want any surprise bills and a fixed monthly cost.
The Key Benefits of Finance Lease
- VAT is charged on the monthly payments and not on the capital cost of the vehicle. Monthly payments are fixed which helps you budget.
- Flexible product, you can put down varying initial payments, varying contract length and the choice to have or not have a final balloon payment. You can tailor the contract to suit your budget requirements.
- No mileage or damage penalties from the funder, although any damage will affect the re sale value.
- Option to re-finance the final payment should you decide to keep the vehicle longer than the contract term.
- Ability to settle the agreement early without early termination penalties, although settling early may result in a shortfall between the settlement figure and the value of the vehicle which will remain your responsibility.
Points to Consider
- You are responsible for insuring the vehicle on a fully comprehensive policy.
- Doing more miles than stated at the point the contract was taken out can lead to a short fall when trying to clear the final payment from the proceeds of selling the vehicle. This also applies should the vehicle not be in a reasonable condition at the point of sale.
- You will never own the vehicle, although you can sell the vehicle to a third party and retain any sale proceeds which exceed the final balloon payment. There are conditions surrounding who the vehicle can be sold to.