Finance Lease

Finance Lease Explained In Simple Terms


Finance Lease Example

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  • Description

    Product Description

    Finance lease

    Finance lease is the most popular payment method with the Swiss Vans customers but it can be complicated to understand. So, we’ll try to make it simple.

    It is ideal for small businesses and sole traders who can’t pay the full cost of a van upfront. Some companies will also be eligible to reclaim any tax they have paid on their commercial vehicle if they are VAT-registered.

    Businesses gain control of a van during the hire agreement, using it as their own while having it on the books as an asset. However, the finance company remain the owners of the vehicle.

    What is finance lease?

    The cost of the vehicle is spread out over an agreed period of time (usually 3-4 years) with fixed monthly payments. You can opt to include a balloon payment at the end of your contract which can lower your monthly payments.

    At the end of the agreement, the vehicle will need to be sold to a third party on behalf of the finance company. If the van is sold for more than the value of the final balloon payment then you can benefit from the equity. Then, you can get yourself in a brand new vehicle by taking the equity from the sale of your van and putting it towards a new lease deal.

    However, if the van is sold for less than the agreed residual value then you will be liable for this shortfall. It is also possible to buy the van back from the third party yourself at the end of the deal.

    Advantages of finance lease

    • Brand new vehicle.
    • Low initial payment.
    • Minimal capital expenditure.
    • Accurate monthly budgeting with fixed monthly payments.
    • Option of a balloon payment to lower monthly payments.
    • Tax can be reclaimed on commercial vehicles by VAT-registered businesses.
    • Can keep most of the equity following the sale of the vehicle at the end of your contract.

    Please note: A commercial vehicle is classed as a vehicle with a weight which is greater than 3.5 tonnes or capable of shifting a payload of over a tonne.

    Disadvantages of finance lease

    • You don’t own the vehicle.
    • Operating costs are your responsibility.
    • The only accepted level of insurance is fully comprehensive.
    • There is a risk of negative equity should you request to settle the agreement early.

    What is a balloon payment?

    A balloon payment is an agreed sum which is due at the end of a finance lease deal. This enables you to have lower monthly payments. However, the balloon payment is usually paid off with the resale of the vehicle. If you have excessive damage or mileage, this can affect the resale value. If the vehicle is sold for less than the balloon payment, you will be liable to make up the remainder.

    Our sales team are experts on finance lease so they’ll be able to answer any further questions you may have. We have other van leasing options if finance lease isn’t for you.

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