A Finance Lease is a method of financing for VAT registered businesses, companies and also partnerships/sole traders. Finance lease is where the finance company owns the vehicle and at the end of the contract they simply keep the vehicle. Finance lease is when the car is effectively hired out to businesses for a set amount of time but they will never be the owner of the vehicle.
As with all leasing contracts the initial payment is usually low and you will pay a fixed monthly payment to the leasing company.
The monthly rental cost is calculated by the initial cost of the vehicle, the residual value (end value), the length of the contract and the balloon payment. This is not always the residual value of the car, since the balloon payment can vary. The residual value is easier to calculate as Finance Lease is still a fixed mileage contract.
During the finance lease period you will have full use of the vehicle until the end of the contract. Once the contract is over, the finance company will then sell the car to a third party. Once the sale is completed if it is sold above the predetermined balloon payment then the finance company will refund some of the proceeds back to the business/company who took out the Finance Lease. A small number of companies will also let you take out a secondary rental if you want to keep the car for a longer period of time.
Finance Lease is good for companies who need a vehicle quickly without having pay a large initial payment and disrupt cash flow. This is also a great solution for companies who need more than one car.
Finance Lease will also suit people who do not wish to take ownership of vehicles and who want to use luxury vehicles but who do not have to buy them out right. This is an attractive proposition for businesses as there are also some tax benefits to Finance Lease.