Finance lease is the most popular payment method with the Swiss Vans customers but it can be complicated to understand. So, we’ll try to make it simple.
It is ideal for small businesses and sole traders who can’t pay the full cost of a van upfront. Some companies will also be eligible to reclaim any tax they have paid on their commercial vehicle if they are VAT-registered.
Businesses gain control of a van during the hire agreement, using it as their own while having it on the books as an asset. However, the finance company remain the owners of the vehicle.
What is finance lease?
The cost of the vehicle is spread out over an agreed period of time (usually 3-4 years) with fixed monthly payments. You can opt to include a balloon payment at the end of your contract which can lower your monthly payments.
At the end of the agreement, the vehicle will need to be sold to a third party on behalf of the finance company. If the van is sold for more than the value of the final balloon payment then you can benefit from the equity. Then, you can get yourself in a brand new vehicle by taking the equity from the sale of your van and putting it towards a new lease deal.
However, if the van is sold for less than the agreed residual value then you will be liable for this shortfall. It is also possible to buy the van back from the third party yourself at the end of the deal.
Advantages of finance lease
- Brand new vehicle.
- Low initial payment.
- Minimal capital expenditure.
- Accurate monthly budgeting with fixed monthly payments.
- Option of a balloon payment to lower monthly payments.
- Tax can be reclaimed on commercial vehicles by VAT-registered businesses.
- Can keep most of the equity following the sale of the vehicle at the end of your contract.
Please note: A commercial vehicle is classed as a vehicle with a weight which is greater than 3.5 tonnes or capable of shifting a payload of over a tonne.
Disadvantages of finance lease
- You don’t own the vehicle.
- Operating costs are your responsibility.
- The only accepted level of insurance is fully comprehensive.
- There is a risk of negative equity should you request to settle the agreement early.
What is a balloon payment?
A balloon payment is an agreed sum which is due at the end of a finance lease deal. This enables you to have lower monthly payments. However, the balloon payment is usually paid off with the resale of the vehicle. If you have excessive damage or mileage, this can affect the resale value. If the vehicle is sold for less than the balloon payment, you will be liable to make up the remainder.
Our sales team are experts on finance lease so they’ll be able to answer any further questions you may have. We have other van leasing options if finance lease isn’t for you.
Best Ways Of Van Finance
At Swiss we have literally most funders on the market and will introduce you to the best value. Our aim is to help you grow your fleet
and become your natural choice to replace vehicles.
– Van Hire purchase – VAT down and VAT deferred . HP is a great way to actually buy a van. If your VAT registered claim the whole VAT amount back within three months.
– Van Leasing
Small deposits from one payment in advance to 50% of the van price. Its 100% tax deductible so great fir new start companies that have start up costs. Is the favourite way for many manufacturers so often attracts the greatest discounts. Its more flexible than contract hire.
– Lease Purchase
Not all manufactures support this method so often pre registered vans are the way to go. This is because you take ownerships automatically and they worry it will affect residual values. Ask us first as often you cant get a private plate on this method. Its very much like HP but more suited to VAT registered companies as they can claim the VAT back of course. If you are flat rate VAT this is the one for you.
– Van Contract Hire
Great for larger fleets that want to control costs but its seldom sold to smaller users as its quite restrictive. Many ask for it because they have asked for it in the past. Some mistakenly think there is no credit check check but there is.