What is Finance Leasing and how can it benefit you and your business? Finance Lease is a method of financing a vehicle that many businesses find beneficial as they can subsequently claim back the VAT on their payments. The monthly payment is determined by the initial cost of the vehicle, the lease period, and the final residual value. Some finance lease companies offer the lessee the option of extending their lease with a secondary rental period. Key benefits Cash Flow – you can use your vehicle immediately whilst allowing payments to be made on a monthly basis, providing your business with better cash flow. Repayment period flexibility – you choose the finance period that’s right for you and your business (24 to 60 months). Fixed monthly repayments – you enjoy peace of mind knowing that your monthly repayments are fixed for the whole term of the agreement. Low deposit – you choose the deposit. Pay a little more and reduce the monthly cost. Low monthly repayments – by varying the deposit or by choosing and varying a terminal rental (a balloon payment payable at the end of the agreement) you can make your repayments smaller. Tax advantages – Provided you’re not in a flat rate VAT scheme, if you’re VAT registered, you can reclaim the VAT payments made within the monthly payments. Tax relief – you can offset your new vehicle’s monthly repayments against taxable profits (100% for a van or pickup & 50% for a car) No mileage restrictions – If there is a balloon payment within the quotation then this will have been calculated using the estimated mileage that YOU have provided so it is important that you are as accurate as possible. However if your circumstances change mid-contract and you find yourself doing more miles than you have estimated then you will not incur any excess mileage charges. The mileage you give only provides an indicative value. It does not restrict you or limit you in any way. So it is a bit more flexible. Obviously bear in mind that if this mileage is significantly higher than what you have anticipated, there is a good chance that the vehicle will be worth less than predicted and in turn it could mean reduced equity and in some cases negative equity can occur. If you choose not to use a terminal rental, then although the payments will be higher you can enjoy total peace of mind with no restrictions and no equity concerns. Equity – Upon sale of the vehicle at the end of the term, the customer retains approximately 97% of any equity remaining after the balloon payment has been paid (% dependent upon finance provider) Final Points Ensure you check any competitors quotes to make sure the details are like for like. Unfortunately some of companies are actively failing to make customers aware of the fact that although their contract is not restricted on mileage it is used to calculate the balloon payment. So whilst the lowest payment may seem attractive, if you’re doing 30k miles pa and the balloon is set using 10k, you WILL have a situation where the vehicle is worth less than the final payment. We at Vanarama Manchester West will of course provide you the same quote for comparison purposes but our advice is always be as realistic and accurate as possible. The balloon payment is always payable and while there will be an option to refinance this amount, there is never the option of just handing it back. Finance lease is an excellent product, but like any financial contract you should always understand the terms and conditions before you enter to into it. About the Author Robert Dadzie is the business manager at Vanarama Manchester West. Vanarama Manchester West part of the Autorama Group, is a leading provider of commercial vehicle leasing in the Greater Manchester Region. For further information on leasing or to obtain a quote, please visit www.vanaramamanchesterwest.co.uk Alternatively you can contact Robert Dadzie on 0161 401 0541 or email [email protected]