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Finance Leasing
How does it work?
A Finance Lease can be a cost-effective way of funding vehicles, having similar VAT and Corporation Tax benefits to Contract Hire, but the risk and responsibility for resale at the end of the term remains with you.
The benefits
- Low initial payment (several monthly rentals).
- Interest rates are usually fixed (but can be variable).
- Rentals can usually be offset against taxable profit.
- Your capital outlay is reduced as VAT is reclaimed by the finance house and passed on in the form of lower monthly rentals.
However, the following must also be considered.
- In most cases the whole cost of the vehicle is fully spread over the life of the contract, potentially leading to higher monthly repayments.
- The risk on resale lies with your company, so with an increasingly volatile used car market your future cash flow could be at risk.
- Additional services such as maintenance and RAC cover are not included, therefore internal fleet administration resources may be required.
- The additional cost of any third party fleet management must be taken into consideration.