What is Finance Lease
Whiat Is Finance Lease?
Often, businesses choose Finance Lease for vans and commercial vehicles, where it’s more appropriate or a better option than Contract Hire:
A Finance Lease agreement is available exclusively to business customers – whether a limited company, self-employed individual or sole trader; but not to private individuals. Businesses often choose Finance Lease for their van fleet due to significant tax advantages.
The business pays rental - not repayments - for the vehicle and that rental payment depends upon the original cost of the vehicle (excl. VAT), the length of the finance lease and the ‘residual value’, plus interest. Residual value is the forecasted worth of the vehicle, at the end of the finance lease period, accounting for depreciation.
Potential Advantages:
- Lowest possible outright investment - for a modest outlay, the assets are available right away.
- Fixed payments for the entire term of the agreement
- Claim VAT back (subject to VAT registration)
- Flexible repayments worked around the company’s cash flow
- Fixed or variable interest options to suit your business
- Possible tax advantages
- No excess fees for added mileage or damage when the agreement ends as you are responsible for disposal of the vehicle
- Once the vehicle is sold, a proportion of the proceeds of the sale are returned to the lessee. The rest is your company’s.
- Helpful for monthly financial planning
- On contracts with maintenance, the service element VAT is 100% recoverable
- Rentals can be offset against profits.
- Decreased admin
- Advice and support throughout the contract
- Maintenance and breakdown package options available
- Optional GAP insurance. This covers any potential shortfall between outstanding finance and insurance value if the van is written off
Potential Disadvantages:
- The company never owns the van - it is sold once the agreement ends
- The company accepts some operating risk associated with the vehicle
- Interest rates will vary on certain contracts
- Fully comprehensive vehicle insurance is required
More Finance LeaseInformation:
Most finance lease companies offer various payment options to suit your business, your budget and your cash flow. The monthly rental payments can be lowered by opting for a balloon payment at the end of the finance lease contract, or by opting for a fully amortised Finance Lease the entire cost can be paid in monthly rental. In this case it’s sometimes possible to extend the finance lease with a secondary – or peppercorn - rental.
For the full facts and all the information you need about your van leasing options, contact Blue Chilli Van Leasing’s expert team.
