Finance Lease
Finance Lease is available to Sole Traders, Partnerships and Ltd Companies. This is taking over popularity from the traditional Hire Purchase method of vehicle finance for commercial vehicles. It is a fixed budgeted motoring plan. You can however have a finance lease agreement with or without a ‘balloon’ payment (you can decide on this figure up to a maximum figure set by the finance company, however this not a guaranteed future value of the vehicle and has to be paid in full).
The initial payment, term and mileage can all be tailored to suit your needs. An initial payment is made (usually equivalent to 3 monthly payments instead of your usual 10%/20% deposit) followed by a monthly payment up to the agreed term.
At the end of the contract you have two options: - 1. Keep the vehicle for a further year and pay the ‘peppercorn’ rental (this is usually equivalent to 1 monthly payment). 2. You can dispose of the vehicle but the finance company has to invoice the third party/buyer. This has to be of market value and the finance company keeps approximately 7.5% commission of the sale value. The agreement holder cannot buy the vehicle it has to be a third party (i.e. family, friends, etc.).
Key Points to Remember:-
- 1. Road Fund Licence is not included for the duration of the contract agreement.
- 2. The contract is agreed from the start to suit your requirements therefore making budget planning easier. Vat is charge monthly.
- 3. This is an asset which shows on your balance sheet and you have to write down the vehicle.
- 4. On the sale of the vehicle you have to take into consideration the finance companies commission, the VAT, equity/negative equity if purchase with a ‘balloon’ payment and disposing of the vehicle.
- 5. You cannot have a maintenance agreement with finance lease so you will have to maintain the vehicle.