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Finance Lease car leasing companies >>
Flexibility is one of the keys to success for any business, large or small. If your business requires one or more vehicles but does not have the finance to pay for the assets, then a car finance lease could be the solution. It’s an alternative to hire purchase with more freedom but just how does a finance lease work and is it right for your business?
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What is a finance lease and how does it work?
A finance lease is a VAT-free method of financing a vehicle that is usually accessed by VAT-registered businesses and companies. It is offered to businesses where a moveable asset (the vehicle) is purchased from a supplier – your business can then use this asset while paying an effective rental rather than a repayment.
The monthly rental is determined by the initial cost of the vehicle, the period of the finance lease and the residual value – that is the estimated future value of the vehicle at the end of the finance lease period once depreciation is taken into account. As a residual value is used to calculate your monthly rental, most finance lease companies will insist that you stick to a strict mileage limit as this mileage restriction is used to determine the future value.
You have full use of the vehicle during the finance lease period. Although you never take ownership, at the end of the finance lease contract a payment equivalent to the residual value is payable. Usually this means that the vehicle is sold and a proportion of the proceeds of the sale are returned to the lessee. Alternatively you could choose to pay the entire cost of the vehicle (plus interest) in monthly instalments.
Some finance lease companies may offer you the chance to extend the finance lease with a secondary rental.
What are the pros and cons of a finance lease?
There are numerous benefits to acquiring a finance lease. These include:
- Low monthly costs and initial outlay – One of the main reasons why companies take on finance leases is to avoid the initial hefty outlay.
- Flexibility – Most finance lease companies will offer a number of payment options to suit your cash flow. You can make deferred payments, lowering the monthly rental with a balloon payment at the end of the contract, or you can pay the entire cost in monthly instalments.
- Latest vehicles – You can gain access to the latest vehicles that would otherwise be unaffordable.
- VAT payments – Up to 50% of the VAT payments can be reclaimed.
- Balance sheet – Taking out a finance lease allows you to feature the vehicle on your balance sheet.
- Hire rental tax allowances can be applied for.
- Maintenance packages – These are often included in the finance lease meaning you don’t have to worry about the vehicle’s upkeep.
- Sales proceeds – You can boost your equity by receiving a proportion of the sale at the end of the finance lease term.
There are disadvantages to finance leases too. Primarily these are that you will never take ownership of the vehicle as the car or van must be sold to a third party.
Furthermore, interest rates can vary steeply from company to company and unless you’re savvy you could pay out much more than you need to. Be prepared to shop around for the best deals. Also watch out for unexpected fees including documentation fees, which are paid at the outset and additional charges from the finance lease company.
Who is a finance lease right for?
A finance lease removes the pressures of heavy initial outlays. It is a proven method of giving your business access to the latest vehicles without actually having to take ownership and buy them outright. There are also tax benefits too, which make this an ideal car finance method for many businesses.
However, do be aware of the interest rates and be willing to shop around. Check out contracthireandleasing.com to compare deals from finance lease companies.
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