Finance Lease Explained

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Finance Lease Explained

This is fast becoming the most popular option for funding new vehicles especially for Sole Traders and smaller businesses. Finance Lease is a very tax efficient option where you choose to pay either the entire cost of the vehicle including interest charges, over an agreed set period of between 24-60 months. You may opt to pay a lower monthly payment with a final Terminal "Balloon" payment based on an approximate resale value of the vehicle which is calculated on a set mileage.

Customers choose Finance Lease for a number of reasons but the main one is that Finance Lease allows the customer and not the finance company to profit from the sale of the vehicle at the end of the agreement. To increase your potential equity at the end of the agreement we recommend setting a sensible final terminal "Balloon" payment set by a realistic mileage usage.

At the start of the agreement the mileage and term are set. Monthly payments and interest rates are fixed. At the end term you may continue to operate the vehicle under a "Peppercorn payment" usually the equivalent to a monthly payment or two but as low as £100 + VAT with some of our funders.

  • Deposits are usually the equivalent of three rentals, but can be any amount whatsoever
  • Repayment period of up to 60 months
  • VAT is paid monthly, then claimed back quarterly (if VAT registered)
  • Rentals are 100% allowable against taxable profits
  • Facility can have a Terminal "Balloon" profile, which defers a large payment to the end of the contract thus reducing monthly rental and aiding cash flow
  • Vehicle sold or part-exchanged at end of contract hirer benefits from between 90-100% of sales proceeds (ex. VAT) dependent on funder
  • Ideal for non-VAT registered business users looking for low initial deposit and maximum flexibility

VAT registered companies, it means paying the VAT monthly, and claiming it back quarterly.

At no time will you take ownership of the asset, and the vehicle must be part exchanged or sold to a third party at the end of the term as the taxman says you can`t have the tax benefits of the lease as well as own the vehicle. Servicing and RFL costs are also your responsibility.

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