Finance Lease: Common Profiles

Rentals in a Finance Lease are based on interest being added to the price of the vehicle excluding VAT, and the balance (less any balloon payment) is paid over a fixed period.

All the rentals attract VAT.

The usual length of agreements (the primary period of hire) is between two and five years on vehicles.

Advance Rentals

Deposits are not taken under a Finance Lease. However, advance rentals are usually paid at the start of the agreement with the exact amounts agreed by the lessor and lessee.

The minimum and maximum advance rentals are determined by the individual lender (lessor). However, three advance rentals is a common amount.

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Fees

Lessor's may charge administration fees for arranging the agreement, but fees are less common than in purchase agreements such as Hire Purchase.

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Regular Rentals

The rentals during the remainder of the primary period of hire will be either `spread` over the term or there will be a `terminal pause` (see Finance Structures module).

Service and maintenance packages can be incorporated into the cost of rentals paid by the customer. Although such packages will increase the cost of rentals, they provide the customer with fixed cost motoring and will cover the customer in the event of problems developing with the vehicle that need to be repaired.

There are no mileage restrictions. However, lenders may impose certain restrictions on the use and location of the vehicle. For example, the vehicle may not be able to be used for certain business purposes or taken outside of the European Union.

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Balloon payment

A balloon payment at the end of a Finance Lease may also be included. If a Finance Lease contract is based on a Conditional Sale agreement then there is no Option to Purchase Fee to be paid.

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