Suitability Explanation - A Customer-Friendly Guide to your Finance Lease
What is Finance Lease (FL)?
Funding a vehicle through Finance Lease (FL) is one of the preferred funding methods for a van. Essentially it’s a rental agreement whereby the van remains the property of the finance company and they rent it to you over a fixed term, usually between 2 and 5 years. You’ll pay rentals which will be subject to vat and you may have the option to reduce the usual monthly rental by adding a larger final rental at the end of the agreement which is based on the anticipated value at the end of the agreement. The van must be sold to a third party at market rate plus vat and you’ll receive usually 95% or more of the net sale proceeds.
Is FL Right for You?
Yes, if you don’t want the restrictions of contract hire or haven’t the funds to pay the vat upfront on a purchase agreement, but it won’t be a good fit if
You want to own the van
Predicting your mileage is a challenge if you want to lower the monthly cost by adding a larger final rental as the vehicle might be worth less than the final rental amount and you’ll need to put your hand in your pocket for the difference
You’re worried about future value
You want to use it abroad extensively as there are restrictions
Your business involves specific uses, like couriers
Benefits of FL:
There’s lots of good plus points to FL
Fixed monthly rentals
The option to reduce the monthly rentals by including a large optional final rental based on expected value of the van. Usually the hirer would arrange the sale of the van for the funder at the point that the final rental is due and offset their portion of the net sale proceeds against the final rental.
You choose the term of the agreement (2-5 years)
Potential to share in any potential resale profit
No mileage restriction
Avoid damage recharges although any damage will of course affect the value of the van
Reclaim the 100% of the vat on the rental costs of the van if you’re vat registered
Optional service, maintenance and repair plans for easy budgeting and you can reclaim 100% of the vat
Road tax at the current rate is included for the initial 12 months
On fully amortised leases (those without a large final rental) there’s the potential to extend into a secondary term for a small sum per year
Responsibilities and Care:
Comprehensive insurance is a must
Prompt payment of fines and charges as if the bill lands with the funder, they’ll make an additional charge for their administration
Service and maintain the vehicle according to the Manufacturer’s recommendations and keep it roadworthy. Use of genuine Manufacturer parts is a must and some funders require you to service and maintain at a main franchised dealer. Please check the terms and conditions of your finance agreement. It’s worth exploring a cost effective service, maintenance and repair package for predictable costs but do bear in mind that the maintenance provider may decline to settle any charges if the total contract mileage is exceeded
Non-payment may lead to contract termination and vehicle repossession
Important Reminder:
Only commit to a FL if you’re comfortable with the financial terms
Make sure that you fully understand the agreement before entering into it
In a nutshell, FL is a great product for those looking for the use of a new van without the concerns of mileage and damage recharges, but it comes with responsibilities.
Failure to make payments in full and on time may result in the contract being terminated and the vehicle repossessed. Only enter in to an agreement if you are comfortable with the financial commitment and terms.
