Business Finance Lease

Finance Lease is a very popular product with many of our customers. It offers the benefits of ownership because you can take advantage of equity build up in the vehicle via a leasing product with a low initial rental up front. VAT is only charged on the initial rental, monthly rentals and final rental, not the initial cost of the vehicle.

The vehicle is hired for a fixed monthly rental with a final rental (balloon) covering the estimated residual value of the vehicle at the end of the contract. You are responsible for disposing of the vehicle at the end of the contract. If the sale price is above the predetermined final rental (balloon) you will retain the equity, less a small charge from the leasing company. If the sale price is less than the final rental (balloon) then you will be liable to cover the shortfall. The final rental is calculated using the expected mileage in the vehicle over the contract.

With Finance Lease you may be able to finance up to 100% of the cost of a vehicle, minimising any initial rental or capital expenditure on your behalf. You can agree the periodic rentals to be paid in return for the vehicle and, at the end of the term, you have the option to rent the vehicle for a nominal sum (known as a peppercorn rental) or to sell it and retain most of the proceeds. Your cash flow will be eased as VAT is payable on the rentals only, not the cost of the asset.

Advantages

Fixed monthly rentals

Choice of contract period from 24 to 60 months

Monthly rentals are up to 100% tax deductible

Potential to carry on using the vehicle at the end of the primary lease period

Additional line of finance that may not affect core banking arrangements

No strict mileage or damage penalties (please note that excess mileage and damage to the vehicle will affect its value at the end of your contract)

Monthly rentals can be lowered further through the introduction of a final rental at the end of the contract. This can be set at a value equivalent to a forecasted residual value or reduced in line with anticipated wear and tear on the used value

Available option to re-finance the balloon payment over a longer period of time

No need to be VAT registered

You retain the majority of the equity built up in the vehicle over the contract

Ability to settle the agreement early

Disadvantages

Risk of fluctuations in the used vehicle market which could be a problem if you have opted for a balloon payment and the value of your vehicle is less than this.

Monthly rentals appear as a liability on balance sheet

There are operating risks associated with running the vehicle i.e Maintenance and servicing costs cannot be included

Risk of negative equity if settled too early clear

You cannot own the vehicle

This would suit customers who:

Want the flexibility of multiple options at the end of the contract.

Want to build up equity over the contract without taking ownership.

Do not want to be tied to a contract which penalises them for vehicle damage or excess mileage.

Are not VAT registered because VAT is paid on rentals rather than all upfront.