Finance Lease Guide
Leasing is a broad term and it is true that lease, contract hire and long-term vehicle rental agreements are often all put into the same category. Finance Lease, however (some dealers call it operating lease), is different.
At Egon Car Leasing, we strive to ensure that our clients are fully informed of all vehicle funding options available to them; with this in mind, we have put together a Finance Lease Guide to help explain exactly why this could be a viable car or van acquisition method for your business.
Finance Lease | Explained
Finance lease is not an agreement like contract hire where you send the vehicle back at the end of the term.
If you are a business that would like to have some equity stake in your cars without the high monthly costs of hire purchase or buying outright but would still like a low monthly amount like contract hire, finance lease could be a consideration for you.
Payments are subject to VAT (currently allowing 50% VAT reclamation) and rentals are allowable against tax – at the same time, there is no resulting company capital being tied up in a depreciating asset.
Is Finance Lease right for you?
Finance Lease is a cost-effective option of acquiring a new vehicle and is suitable for all types of VAT registered businesses.
Although Finance Lease is an excellent solution for all vehicles, it is a particularly effective way for savvy Fleet Managers to fund vehicles that depreciate quickly, like vans and hardworking commercials, or cars that cover high annual mileages.
How does Finance Lease work?
Lease agreements let your business use a vehicle without ownership, yet it still offers the returns of any asset value achieved from the sale, or most of the sale proceeds less a percentage to the finance companies in some instances.
At the end of a Finance Lease contract, the customer must sell the vehicle on to a third party with the idea being to retain up to 98% of the sale proceeds, depending on the residual value that has been set at the start of the contract.
There are not a huge number of companies that advertise Finance Lease when you look at the sheer number of advertisements that can be found online for contract hire.
This is because it is a contract that requires an experienced company to put together the right package for you.
Initially, your designated executive at Egon Car Leasing will tailor-make quotations for you based on information that you have given us and agree a term and residual value.
At the end of the contract, you can arrange to sell the vehicle or request our assistance to help you with this process – the sale proceeds are offset against the residual value. If the sale proceeds are more than the final value, then the balance is yours to keep.
Finance Lease – vs – Contract Hire
Here are some reasons why Finance Lease could be a great alternative to Contract Hire for your business:
- Affordable, fixed-repayment motoring that’s tailored to suit your budget and annual mileage and preferred term.
- Low initial outlay – you decide!
- 50% of the VAT is reclaimable on your monthly rental, 100% is reclaimable on commercial vehicles.
- You get to keep the majority of any profits realised from the sale at the end of the Lease.
- Vehicle lease payments are rentals so they can be offset in full against tax in full or part, depending on what the vehicles are used for.
- Finance companies offer low rates to help encourage the uptake of Finance Lease transactions (they benefit from written down allowances as vehicle owners).
- The Finance Company also funds the vehicle less the VAT, lowering the balance and monthly payment to the customer!
Are there any risks associated with Finance Lease agreements?
If your end residual value is set up realistically, then you should find that your risk is minimal.
However, all risk is ultimately yours – if your drive more miles than originally anticipated or your car is damaged for example, your car may well be worth less and you are liable for the difference if there is a shortfall.
Finance Lease from the experts at Egon Car Leasing
Quote online today, click here to contact us or call us on 01952 290 949 to discuss your vehicle Contract Purchase requirements. We look forward to hearing from you soon and welcoming you as another valued customer!