A Finance Lease has some similarities with Contract Hire, but the key difference is that the hirer is responsible for the residual value (resale) at the end of the contract. This means that the hirer will gain if the vehicle is sold for more than the agreed residual value. Equally if it is sold for less the loss will be down to the hire not the car leasing company. The main benefits of a finance lease are as follows:
Fixed monthly cost
A Finance lease will have a fixed monthly price and a residual value that is set out at the start of the lease. Normally three rentals are required at the start of the finance lease and the lease will be three or four years. The road tax is normally included in the rental price and unless a maintenance package is taken then all the servicing and running costs are paid by the hirer.
The car leasing company are able to claim back the VAT on the purchase price of the vehicle. This saving is reflected in the monthly leasing cost to the customer. The customer is also allowed to claim back 50% of the VAT on the monthly rental cost. In the case of commercial vehicles (Vans) all of the VAT is allowed to be claimed back
Improved cash flow
The cash flow of the company is improved as the fixed monthly rentals can be paid from income generated by the business.
At the termination of the finance lease the company can benefit from the net sales proceeds of the vehicle
A Finance Lease is available on make or model of car or van. In some cases it is possible to be able to claim back the VAT on used cars, making a finance lease a cheap car leasing option.