Finance leasing explained
Whether you are upgrading your fleet or leasing for the first time, understanding the different types of finance options is an essential first step. This guide explains one of the most common options – finance leasing. It will cover the key features and address frequently asked questions about end-of-lease options. By the end, you will know how finance leasing can support your business needs.
What is a finance lease?
Finance leasing is popular with businesses that want to source new vehicles without the commitment of ownership. It provides flexible repayment, mileage and end-of-lease options, making it a practical choice. You’ll choose one of the following:
- Higher monthly payments: You can opt for larger monthly instalments fixed throughout the agreement, which cover the full cost of the vehicle.
- Lower monthly payments with a balloon payment: Alternatively, you can pay lower monthly amounts and make a final balloon payment at the end of the lease term.
Unlike other finance types, you won’t be given the option to own or return the vehicle to the finance provider. Instead, you’ll need to extend or sell the vehicle to cover the remaining balance. This helps businesses access reliable vehicles while managing their fleet.
Benefits of finance leasing
There are several benefits to finance leasing:
- Flexible terms: Agreements typically last two to five years and can be tailored to specific business needs, offering a cost-effective way to source fleet vehicles.
- Cost reallocation: Avoiding large upfront costs helps businesses invest in other areas, such as staffing, equipment, or marketing.
- Fewer restrictions: Flexible mileage and wear-and-tear limits, perfect for high-mileage businesses who rely on a fleet of vans.
- Tax benefits: VAT-registered businesses can claim lease payments as tax deductible expenses.
- Broad applicability: Flexibility and cost-efficiency means finance leasing is a practical choice for lots of different businesses.
Alternatives to finance leasing
If you’re looking for alternatives to finance leasing, here are some options to consider:
- Contract Hire: A hassle-free option with fixed costs, including maintenance.
- Hire Purchase: Offers ownership with higher upfront costs.
- Outright Purchase: Suitable for businesses with capital to invest in outright ownership.
Each option has its advantages, so it’s important to assess what works best for your business and cash flow. To find out more, explore our guide on contract hire, and hire purchase.
What happens at the end of a finance lease contract?
At the end of the lease, businesses can sell the vehicle to a third party, with most of the sale proceeds (typically around 98%) retained by the business, while a small percentage goes to the finance provider. This option can allow businesses to recover a portion of their investment or potentially generate a profit.
Alternatively, businesses might have the option of paying a balloon payment and continuing to use the vehicle under a nominal annual rental agreement. However, this isn’t guaranteed and will be judged on a case-by-case basis.
Get the right finance lease deal with Synergy
At Synergy, we make finance leasing simple and hassle-free. With our award-winning customer service, free UK mainland delivery, and dedicated account managers, we’re here to help you find the perfect lease for your business.
Whether you’re looking for a single vehicle or an entire fleet, we’ll ensure you get a deal that meets your needs and budget. Discover our business leasing offers or get in touch to discuss your options today.