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What is Finance Lease?

A Finance Lease agreement is generally an offering for commercial vehicles only. Finance lease is a contractual arrangement between a finance company’s (the leasing company) and a lessee (the business) that allows the customer to use a commercial vehicle over a predetermined period in exchange for regular lease payments. Unlike a contract hire agreement where the finance company retains ownership and responsibility for the vehicle, in a finance lease, the customer assumes the risks and rewards of the vehicle.

Key features of Finance Lease Agreement:

  1. Low Initial Outlay: Initial rental payments (deposit amounts) can be as little as one monthly rental or up to 50% of the vehicles value.
  2. Cost Management and Budgeting: Finance lease payments are typically fixed and spread out over the lease term, making it easier for businesses to budget and manage cash flow. This stability helps avoid unexpected expenses.
  3. Final Rental/Balloon Payment: The ability to have a final rental payment (Balloon) deferred to the end of the agreement to reduce monthly rentals for the term of the agreement.
  4. Preservation of Capital: Businesses can acquire and use the commercial vehicle without a large upfront payment, preserving capital for other business needs like expansion, marketing, or hiring.
  5. Tax Benefits: In most cases, finance lease payments are considered operational expenses and are tax-deductible. This can lead to potential tax savings for the business. On a commercial vehicle you are able to offset up to 100% of the rental payments against pre-tax profits.
  6. Access to Newer Vehicles: Commercial vehicles can become technologically outdated over time. With a finance lease, businesses can upgrade to newer models at the end of each lease term, ensuring access to the latest features and improvements.
  7. No Excess Mileage or Reconditioning Charges: Unlike a contract hire, there are no excess mileage or vehicle reconditioning charges at the end of the agreement. However, the liability of the final rental payment (balloon) remains the the customer. Excess mileage and/or excessive damage could have a negative effect on the resale or part exchange valuation at the end of the contract term. Any shortfall from the sale or part exchange value achieved would be the customers liability.
  8. End of Term Disposal: The customer has the ability to gain up to 100% of the vehicle sale equity at the end of the lease agreement.
  9. Secondary/Peppercorn Rentals: In most cases, the finance company offers the ability to extend the contract term when the original lease agreement expires. This is called a secondary or peppercorn rental. The secondary rental payment is a one-off annual payment that is paid yearly until the vehicle is sold or part exchanged to an unrelated 3rd party. Terms and conditions apply.

Concerns of a Finance Lease Agreement:

While a Finance Lease Agreement for a commercial vehicle can offer several benefits, there are also certain concerns and potential drawbacks that businesses should be aware of before entering into such an arrangement. Some of the concerns include:

  1. Ownership: The customer will not own a finance lease vehicle.
  2. Road Tax: In the case of a new vehicle, The first years road tax is included within the finance lease agreement, the proceeding years road tax is the responsibility of the customer.
  3. Residual Value Risk: With a finance lease, the customer often assumes the risk of the vehicle’s residual value (its value at the end of the lease term sometimes referred to as a Balloon payment). If the actual market value of the vehicle is lower than expected at the end of the lease, the customer will be responsible for paying the difference.
  4. Maintenance and Repairs: The customer will be responsible for all running costs, maintenance and repairing the vehicle.
  5. Commitment Period: Finance lease agreements typically have fixed terms, which could lead to inflexibility if the business’s needs change during the lease period. Early termination of a lease agreement is possible, however there might involve additional costs.
  6. Market Changes: Depending on the commercial vehicle market, the actual value of the vehicle at the end of the lease may be uncertain. Changes in technology, demand, or market conditions could affect the vehicle’s value and potentially impact the customer’s financial position.
  7. Credit Considerations: Leasing agreements often involve credit checks and may impact the customer’s credit rating. It’s important to be aware of the potential credit implications of entering into a finance lease.
  8. Motor Insurance: It is the responsibility of the customer to ensure the vehicle is adequately insured with a comprehensive motor insurance policy.

Within New Vehicle Solutions Limited there are a number of finance options we are able to provide. Based on our discussions and your responses to our questions we will have narrowed down this selection to the one that may be most appropriate given your personal circumstances and requirements. We do however believe it is important that in making the decision you are aware of all finance options we have available (some of which may not be applicable in your particular circumstances) and have relevant information on the options available. Further information on the types of finance options we are able to offer can be obtained from organisations such as the Finance and Leasing Association or the Money Advice Service Details of alternative finance options and their explanations will be provided to you as part of our Initial Disclosure Terms of Business document.

To ensure you get the very best advice, you should seek professional guidance from your accountant or a Business Finance Specialist.

Any agreement for vehicle funding will be completed without advice and based on your explicit instructions.

Registered Office:

New Vehicle Solutions, Tremains Road, Bridgend, South Wales, CF311TZ
Company Registration Number: 8572112 – VAT Number: 166595858 

New Vehicle Solutions Ltd is authorised and regulated by the Financial Conduct Authority, our firm reference number for consumer credit is 685872 New Vehicle Solutions Ltd is an Appointed Representative of AutoProtect (MBI) Limited which is authorised and regulated by the Financial Conduct Authority for Insurance Mediation, their reference number is 312143.

We are a credit broker and not a lender.
We are permitted to conduct Credit Brokering, Debt-Adjusting and Debt-Counselling in connection with the whole or partial settlement of credit agreements for vehicle finance and consumer hire agreements.

New Vehicle Solutions Limited does not and will not charge any fees for providing any Consumer Credit services. 
Some of our lenders may charge administration fee’s to set up your agreement. 

Whichever lender we introduce you to, we will typically receive commission from them (either a fixed fee or a fixed percentage of the amount you borrow). The lenders we work with could pay commission at different rates. However, the amount of commission that we receive from a lender does not influence the amount that you pay to that lender under your credit agreement. Any renumeration amounts can be requested by emailing [email protected] prior to the conclusion of the transaction. Our aim is to secure finance for you at the lowest interest rate you are eligible for from our panel of lenders. 

Last Updated: 01/08/2023

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Page Last Updated: 17/10/2023
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