Do you use finance lease as a method of vehicle finance for your business?
It can certainly be a confusing form of finance, and one that needs to be understood, so that there are no Grey area’s impacting on you or your business. Please read our disclaimer as below to find out more, and let us know if there are any queries you have:
Finance Lease Disclaimer
Please read this disclaimer if you are considering a finance lease for your vehicle(s.)
Bullet pointed as follows are the general points that need to be considered if taking a finance lease:
- Ownership remains in the name of the vehicle leasing company during a finance lease, though at the end of the repayment term a 3rd party can be specified to take ownership of the vehicle.
- The amount that the vehicle needs to be sold for needs to be a ‘fair market rate’. Perhaps equivalent to the trade value of the vehicle based on its mileage at the time of sale.
- The 3rd party specified, would then be billed the amount set by you, and on cleared funds they would be sent the vehicles V5 form. At this point the contract between you and the leasing company would be terminated.
- On the termination of the contract you would be credited with typically 97.5% of the sale proceeds (most leasing companies retain 2.5% of the sale proceeds, though this can vary from 0% to 5% dependant on the funder with whom you proceed.)
- VAT is also payable on any final balloon payment, and is 50% reclaimable by you.
Once the contract is terminated and the sale of vehicle is complete, the 3rd party is free to do as they please with the vehicle ownership document (The V5.)
The customer is not able to be the nominated buyer of the vehicle however, as it is they who have had the VAT benefit throughout the duration of the lease term.
- If a 3rd party is not specified at the end of the repayment term, the contract would enter a ‘secondary repayments phase.’ This means that a ‘peppercorn rental’ of equivalent to one monthly payment every 12 months would be taken for you to continue with the use of the vehicle. The vehicle still remains in the ownership of the leasing company during this time, and would remain so until a 3rd party sale is specified for the transfer of ownership.
- It is also possible with some funders to terminate early your finance lease agreement, by requesting a settlement figure from the leasing company. A 3rd party can then be specified in the same way as mentioned above. This option is usually available after 12 months on lease, and before the last 9 months of your contract.