Finance Options Explained: A Brief Guide To Available Finance Options

What is Finance Lease?

Finance Lease is and has been a popular and increasingly sought after funding method for business vehicle users. (Especially Commercial Vehicles) 

Finance Lease is a vehicle hire agreement: 

It offers a flexible and cost efficient way to gain the use of a vehicle whilst spreading VAT across all of the rental payments over the contracted period. Finance Lease can be offered for both New and Used vehicles.

Finance Lease is a finance product specifically for business users. You take control of a vehicle for a predetermined period for an agreed maximum contract mileage with fixed monthly rentals. The agreement features a Residual Value that is based on the period of the lease and your anticipated annual mileage. 

At the end of the agreement the vehicle is sold to a third party on behalf of the finance company  If the proceeds of the sale are more than the Residual Value then the finance company will refund a percentage of the proceeds back to the hirer. (normally 95 to 97.5%)

If the proceeds from the sale are lower than the Residual Value then the hirer will be liable to make a further payment to the finance company.

Finance Lease is NOT an ownership agreement

You are responsible for the disposal of the vehicle at the end of the contract

this can be done by selling the vehicle yourself or putting the vehicle in part exchange.

If the sale value of the vehicle exceeds the final Balloon Rental or Terminal Rental payment - *you obtain the equity, If the achieved sale value of the vehicle is less than the final Balloon Rental or Terminal Rental payment, You are liable for any shortfall..(*Less a small charge from the finance provider)

Benefits of a Finance Lease:

• Low initial outlay especially if not VAT registered - compared to other funding methods.
• Minimal Capital expenditure
• Fixed Monthly Rental Costs for accurate monthly budgeting
• The flexibility of using a balloon payment to reduce your monthly rentals if required
• Lease Periods from 24 months (2 Years) up to 60 months (5 Years)
• The initial 12 months road tax and first reg fee are included (*New Vehicles Only)
• Initial Rental - Monthly Rentals & Final Balloon Rental are up to 100% tax deductible
• No need for you or your business to be VAT Registered
• Ability to gain up to 100% of the vehicle sale equity at the end of the contract
• The possible ability to settle the agreement early
• *No excess mileage charges or reconditioning charges at the end of the contract

 (*Excess Mileage and damage to the vehicle will effect the sale value of the vehicle at the end of the contract)

Concerns:

Final Rental ‘Balloon’ Payment: The liability for the final rental remains with you - If you damage the vehicle through misuse or exceed the anticipated mileage then this could have a negative affect on the resale / PX value the vehicle will attract at the end of contract - If the market for your vehicle fluctuates and the sale value achieved is less than the final rental - You are liable to make up the shortfall.

Running Costs:  The running costs for the vehicle are your responsibility, Please take this into consideration when looking at a Finance Lease. Maintenance, Servicing and ‘Wear & Tear’ and Road Tax for the vehicle is your responsibility.

Negative Equity:  Should you request to settle the agreement too early - There is a risk of negative equity.

You will never own the vehicle: The vehicle must be sold to a third party at the end of the agreement

Insurance: You must have fully comprehensive motor insurance  

Vehicle finance for businesses is a complex area and recommending the correct funding solution will depend on many factors including:

 Business Status

 Cash Flow

 Other Borrowings

 Vehicle Usage

 Suitability and Affordability

Application Process:

New Vehicle Solutions Limited will assist with calculating the amount of finance required to complete your vehicle acquisition. This calculation is likely to include the purchase price of the vehicle your are considering less any part exchange and or cash deposit 

As part of the loan approval process, personal details for each applicant will be passed to one or more Finance Companies. Typically the personal information required to assess your loan application will be as follows: 

• Full Name Date of Birth 
• The address(es) where you have lived for the last 3 years 
• Home Owners status - Owner / Tenant Telephone number(s) Employer(s) you have worked with for the last 3 years 
• Marital Status 
• Bank Account number and Sort Code 
• Income and Expenditure information (Demonstrating Affordability)
• Supporting Financial Information and Documentation may sometimes be requested.

Credit searches will be undertaken with one or more Credit Reference Agencies 

In most scenarios, the Finance Company decision to accept / decline your loan application will be immediate although some applications might take longer to process 

Once accepted / declined New Vehicle Solutions will complete all necessary regulatory paperwork with you ensuring you have a clear understanding of the finance agreement you are entering into 

• A copy of each applicants Driving Licence (both parts) will be required to confirm your identity. You may also be asked to provide supplementary documentation as part of the approval process 

• Proof of comprehensive vehicle insurance may also be required Note: The Loan approval process for finance obtained via 3rd Party providers may vary from the steps outlined in this illustration

Within our organisation 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 www.FLA.org.uk or the Money Advice Service www.moneyadviceservice.org.uk

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.

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.

Company Registration Number: 8572112 – VAT Number: 166595858 Registered Office: New Vehicle Solutions Ltd, Tremains Road, Bridgend, CF311TZ

New Vehicle Solutions Limited does not and will not charge any fees for providing any Consumer Credit services. 

Some of our lenders may charge an administration fee to set up your agreement. 

New Vehicle Solutions Limited typically receive a commission or other benefits from finance providers should you decide to enter into an agreement with the finance provider we have introduced you too. Such commissions or benefits are variable depending on the finance provider, Type of contract and term of agreement and are not affected by rates of interest on the loan. Any renumeration amounts can be requested and disclosed prior to the conclusion of the transaction.

You can check this on the FCA Register by visiting the www.fca.org.uk or by contacting the FCA direct on 0300 500 8082

Calls may be recorded for training and monitoring purposes.

Last Updated: 21/01/2021