All information is provided only as a guide.
We cannot be held responsible for any changes in legislation.


FINANCE LEASE

Finance Lease offers the benefits of acquiring a vehicle on low monthly rentals that can be offset against a final larger balloon payment – an agreed figure that is matched to the anticipated residual value at the end of the finance term.

(NB: due to the nightmare situation in the past, these forecast figures are now more conservative and provided your mileage is accurate and the condition of the vehicle good, you should not find yourself with negative equity.)

• The legal title of the vehicle remains with the leaser.

• The initial rental for a lease finance agreement can be as little as one month’s payment, so the impact on your cash flow can be minimal, especially on commercial vehicles. This is because the VAT is payable monthly rather than a lump sum upfront like HP or other purchase products.

• The equity value of any existing vehicles you own or have on Hire Purchase could be released, so your short-term cash flow could be improved by leasing.

• Low monthly rentals, which may be offset by a final larger payment that is covered by the vehicle’s future residual value.

• No large deposit to find, so no adverse effects on cash flow.

• 100% can be offset against your taxable profit liability on commercial vehicles. However, with cars the tax efficiency is as follows: 100% for up to £12,000, thereafter a sliding scale is introduced i.e.: 90% at £15,000 and 80% at £20,000.

• You can choose from any new car or VAT-qualifying used car and any commercial vehicle.

• The end-of-term balloon payment is fixed at the beginning of the agreement; so right from the start you know exactly what your financial commitments are.

• On payment of this final figure, you take charge of the collateral within the vehicle with no further financial commitments. However, most businesses will want a new replacement vehicle. The end-of-term balloon payment is usually covered by the sale of the existing vehicle before funding its replacement with a new Finance Lease agreement.

• You can have a full payout lease that reduces the outstanding balance to zero over a 2 – 5 year period. This can give you the flexibility of settling early, or building equity into the vehicle that can then go on as advance rental for the next vehicle, or a profit to your company.

• If the figure raised from the sale of the vehicle is greater than the final payment, the difference is your profit though it should be noted that in all cases, the finance company will require between 2.5% and 5% of the sale proceeds under the terms of the lease agreement.

Disadvantages

1. The residual (balloon) payment is calculated using a forecast system. This is a guide only and cannot be 100% guaranteed. If you exceed the mileage or abuse the vehicle, it may not achieve sufficient funds on sale to cover your outstanding rental (your liability).

2. Interest charges may work out slightly more than the equivalent Hire Purchase agreement.

3. If you choose to settle early, you may have to pay as much as all of the charges due where the agreement is not regulated by the Consumer Credit Act e.g.: if you are a Limited Company.

In Our Opinion

This could be an alternative to Hire Purchase if you find yourself needing a tax shelter, or are not yet registered for VAT, but may become so during the course of the lease. Be sure to run the lease to full-term in order to gain full tax efficiency.

Please note, Eurovans has compiled this information simply to assist you in choosing the most suitable funding option. We cannot make the decision for you.
If you are unsure, you should take the advice of your financial adviser, or, in the
case of business customers, it is essential that you consult with your accountant.