Fleet funding: finance lease

Finance lease is a method of financing a vehicle over a set period and the lessor - the finance company - retains ownership of the vehicle.

There are two options: either pay the entire cost of the vehicle including interest charges over an agreed lease period; or pay lower monthly rentals and a final payment at the end, which is based on the anticipated resale value of the vehicle.

Under a finance lease, the lessee never takes ownership of the vehicle.

The lessee benefits with a fixed cost but does take on the administration and operating risks, for example unexpected maintenance, repairs and losses in residual value.

While a finance lease does provide an effective means of acquiring vehicles it does not automatically provide a fully inclusive service covering other important areas of fleet management such as maintenance, duty of care, compliance with legislation and environmental performance.

With finance leasing the lessee also retains all the economic risks or benefits of ownership.

• Pros: low monthly costs and initial outlay; flexibility; and up to 50% of the VAT payments can be reclaimed.
• Cons: you will never take ownership of the vehicle as the car or van must be sold to a third party; risk of high interest rates; potential for additional charges; and focus on vehicle cost rather than wholelife cost.