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Finance Lease Explained

What is Finance Lease?

Finance Lease is one of 3 main funding solutions available in business vehicle leasing (alongside Contract Hire and Hire Purchase). There are many reasons why a great number of businesses opt for a Finance Lease; such as, flexible end-of-lease options, tax and VAT efficiency, and no expensive excess mileage or damage charges.

Like other funding options, you will pay a fixed monthly fee for the agreed duration of the lease (usually between 2 and 5 years). As with any finance agreement, when applying, you will be proposed for finance and yourself or your business will undergo a credit check.

The advantages of Finance Lease

100% Tax Efficient

All payments are deductible against revenue – which can save you up to 40% off the cost of your vehicle. As ownership lies with the funder, a Finance Lease gives the tax-efficiency of a rental.

Low Initial Cost

You’ll only need to pay 3x monthly rental payment upfront. Rather than paying the full VAT upfront (like Hire Purchase) you’ll only need to pay the VAT initially for this deposit.

Low Monthly Payments

Opting for a residual payment will reduce your monthly payments as you are not paying the full cost of the vehicle over time. Leasing discounts are higher so you’ll benefit from the lowest price available to you.

100% VAT Efficient

100% reclaimable if your company is VAT Registered. The VAT is spread across the monthly lease payments for the duration of your lease. So unlike Hire Purchase you won’t need to pay out for the entire VAT upfront.

No Excess Charges

Unlike some other funding options, with a Finance Lease you won’t be subject to any unexpected excess mileage charges. You’ll also avoid expensive excess damage charges at the end of your lease.


What you pay towards your new van on finance is worked out using the residual value of the vehicle at the end of the lease. This means the capital you put down in your monthly rental payments isn’t tied up in a depreciating asset.

What happens at the end of my Finance Lease?

Do nothing: Keep using the vehicle and the final rental will come out of your bank account by Direct Debit. This is called the ‘Secondary Term’/’Secondary Rental Period’ in which you will pay an ‘Annual Rental’/’Peppercorn Rental’ of a few hundred pounds a year.

Trade in: If you would like to trade in your van and take out a new business van lease, you can part-exchange the vehicle with us for a new model. You will be able to benefit from any equity in the vehicle, which you can put towards the deposit on your new vehicle. This is a great option if want to benefit from new van leasing deals and want to ensure your business vehicles are always up to date.

Sell the vehicle: At the end of your business van lease, you have the option to sell your vehicle on. You can advertise the vehicle privately and sell on behalf of the leasing company. You’ll need to settle the Final Rental and send the leasing company a small percentage of the sales invoice value (usually between 2% and 5%).

Refinance: The last option if you have opted for Finance Lease would be to refinance the Final Rental. To extend the lease, we would provide you with a quotation to refinance the Final Rental over a further agreed leasing period (subject to credit approval).

Need more information on Finance? Contact Us or call 0117 962 5314 to speak to one of our van specialists