Finance lease

What is finance lease?

Finance lease is a popular option for commercial vehicles when contract hire isn’t suitable (and it can also be used for cars).

How does finance lease work?

With a finance lease, you won’t own the vehicle, but it will appear on your balance sheet. The capital element of the outstanding rentals acts as the subsequent liability.

At the start of the lease, we agree with you how you will use the vehicle. As long as you stick to this agreement, your monthly payments and interest rates are fixed for the contract.

You can choose to pay:

the entire cost of the vehicle, including interest charges, over an agreed period.
a lower level of monthly rentals, with a final payment based on the amount you sell the vehicle for.

If you default on your payments, we may have to repossess the vehicle and sell it. In this situation, we will also assess the vehicle for fair wear and tear.

Refinance the final payment

You can choose to refinance the final (or ‘balloon’) payment on the vehicle for six, 12, 18 or 24 months, as long as your contract includes a final payment. You can do this up to 90 days before the contract ends and you must have everything in place at least ten days before it ends.

The only restrictions are:

the value of this payment must be higher than £1,200.
all monthly payments must have been made on time.
the vehicle is not currently older than 36 months.
the vehicle will be no older than 72 months at the end of the refinanced contract.

Use secondary rental

As your finance lease contract can’t be extended, you can instead do what’s known as a secondary (or ‘peppercorn’) rental. This means you pay roughly 3% of the capital cost of the vehicle each year (using a figure set at the start of the contract) and you can do this for as long as you want.

Selling the vehicle at the end of the contract

When the rental is over, you must sell the vehicle to an unconnected third party. You will then pay us 2% of the sales proceeds. For a full description of how finance lease works, please see our product guide.

Is finance lease right for your business?

It might be right for you if:

You want to pay a fixed monthly amount, with the option to include maintenance costs.
You want a tax-efficient way to lease a vehicle. Rentals can be offset against taxable profits, while VAT can be reclaimed by VAT-registered businesses.
You want to receive 98% of the sales proceeds.
You want brand new vehicles.
Your vehicles are used in a trade where they are more likely to be damaged.

It may not be right for you if:

You want to own your vehicles.
You prefer to buy used vehicles.

Key details to keep in mind

Road tax
Included for the first year of the contract and then billed annually in the following years.
Amendments
No. Mileage and maintenance can’t be changed once the contract has started.
Maintenance
Optional.
Recovery
Optional.
Excess mileage charge
No, on the main contract. Yes, on the maintenance element, if selected.
Possible additional costs
If you get any fines (such as speeding or parking), we will transfer these to you where possible. When they need to be paid by us directly, we will do this and recharge you, including a £15 administration fee.