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Finance lease provides a flexible way to acquire a vehicle

 Published 10th July 2018
General Guides 

There is an argument that says the number of different ways to fund your company cars and vans is confusing: everything from traditional HP (ownership) through to business lease (usership). And many different variations in between.

But actually it's something of a strength, too.

Because you can make a particular type of funding work to your advantage. Which is why it's always worth asking assistance from specialists such as us at Gateway2Lease.

And that's very much the case with finance lease.

Finance lease is something that has been overlooked slightly in the rush for business and personal leases.

But it's a great way for a business to lease a car or van for a number of reasons.

Often referred to as 'long-term leasing' - although you can flex the timescale to suit your own business patterns - it is very flexible.

It works particularly well for businesses where the condition of the vehicle may be an issue at the end of the term.

For example, so-called 'dirty trades' such as builders. With contract hire business leasing there are various end of term conditions to be met; clearly a builder's van or truck may see some heavy usage during its life and would unlikely meet a ready to retail type condition that is required by contract hire.

Similarly, if you or one of your staff are not good at keeping a car in good condition then finance lease might again be another solution worth considering.

It's also a funding method that may be useful to you if you are unsure of the mileage pattern.

Choose the type of finance lease that suits your cash flow

There are two types of finance lease.

Both pay off the cost of the vehicle, but in different ways. You should note, though, that the vehicle will never belong to you.

The first type features a 'balloon' rental at the end of the lease term. It's useful if you wish to keep your monthly payments low during the initial period. You agree a residual value for the ballon, which when you come to sell the vehicle on the leasing company's behalf, covers the final balloon payment. If it does not, you have to pay any shortfall.

The second is a full payout lease. This pays off the full cost of the vehicle during the rental agreement so the lease rentals will be higher than on a 'balloon'.

At the end of the agreement, you can sell the car on the finance company's behalf - or let them do it for you - then you can receive a rebate worth up to 95% of what the vehicle was sold for.

Alternatively, if you really really like the vehicle, you can continue to use and pay what is called a 'peppercorn' rental. In other words, very little, but which just recognises your use of the vehicle even though you don't own it.

So, as you can see, finance leasing is a highly flexible product.

In addition, it has all the VAT benefits of business contract hire - such as the ability to claim 50% of the VAT or 100% for commercial vehicles - while the vehicle is shown as an asset on your balance sheets. Which may be useful if your business is wishing to boost its valuation. Vehicles can be written down in the normal way as if they were owned by you; the interest on the lease rentals can be claimed against taxable profits.

If you're interested in finance lease, talk to us about how it could fit with your business.

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