Business Finance Lease
You assume risk
Business Finance Lease is popular with:
Companies as an alternative to contract hire.
How Business Finance Lease Works
The crucial difference from contract hire is that finance lease rentals are not necessarily dependent on a predetermined vehicle life cycle - and hence residual value. The lessee may pay back the entire capital cost of the vehicle plus charges over a period of time, or may agree a balloon payment to reduce the monthly rental - but never takes ownership. A business finance lease is particularly useful for fleets with wide variations in operating requirements. Despite the fact the operator does not assume ownership, he does take residual value risk.
Advantages of a Business Finance Lease
- Small upfront deposit and the option of a balloon payment.
- Finance lease payments can be offset against tax.
- User can decide when to cancel contract but will incur early termination charges.
Disadvantages of a Business Finance Lease
- Vehicles are on balance sheet.
- Risk of vehicle resale value lies with user.
- No capital allowances for user.
Summary
Leasing companies are able to reclaim input VAT, with this method of financing a business car, which reduces their capital cost and hence the amount of funding and repayments required. This makes finance lease a cost-effective alternative to contract hire for certain companies.
Significant Manufacturere support may be reflected in the funding cost of fnance lease thereby minimising the cost of funding.