Finance Lease Uncovered

I was going to do a little video with a whiteboard and loads of numbers and make myself look super smart however it's just another note of common sense with some real time examples for you to digest...……...and an opportunity to waffle on my keyboard rather than in my baseball cap (see last weeks "Can I return my car at the half way point" video)

In the bad old days leasing brokers would advertise an 'Unlimited Mileage' offer which it turned out happened to be this little product called 'Finance Lease'. Particularly popular with businesses running vans I'm going to go over some pros and cons and also some real figures.

My aim with all this is to cut to the chase when it comes to leasing and finance on vehicles. Apologies if you need to get any questions answered It is not my intention to overwhelm or confuse an already silly marketplace. For many people the motor industry is much life their golf swing - we need to forget what you already know and start again.

So here we go:

Finance Lease is pretty much the same as Contract Hire EXCEPT the 'risk' transfers from the leasing company to the customer. What this means: Client sells the vehicle to cover a final 'balloon' payment rather than gives back to the leasing company to sell the vehicle.

So the bit that's 'pretty much the same' is that two of the major leasing houses (plus a few more) have this facility for us to sell their special offers, apply fleet pricing and therefore get you a good deal for customers who prefer not to Contract Hire.

The 'Balloon' is calculated using a realistic resale value based on the estimated devaluation of the vehicle. What this means: Risk should/could be minimal if the client can estimate the mileage accurately.

Finance Lease can be sold as more flexible than Contract Hire. Essentially IT IS because the vehicle is not returned back the leasing company. This means the client is only responsible to meet the monthly payments and balloon payment and keep it taxed...............….not an agreed condition or mileage of the vehicles.

There are less providers of Finance Lease than Contract Hire so it SOMETIMES makes sense to look at both options when taking in to account the cost of running the vehicle.

HOWEVER - (this is an important HOWEVER!!!)

No matter how a car or van is paid for if its been driven by a careless work force and racked up loads of miles its worth less than a low mileage pristine equivalent vehicle. So if a client is shifting frm Contract Hire to Finance Lease to avoid excess mileage or damage recharges there is still a cost it just doesn't arrive as an invoice. It arrives when the vehicle is worth less at market down the line. Remember that dismissing Contract Hire due to mileage or recharges is often just kicking the can down the road.

HOWEVER (this is a GOOD however!!)

If a customer wants to 'own' a vehicle after the duration of the lease they know from the start what the price will be after the initial finance deal. They can transact the vehicle back to themselves and, should they wish re-finance that balloon payment or just pay cash. Or just sell it for the market value to cover the balloon. The market will dictate if they win or lose.

Much like a PCP 'equity' if the vehicle has done less miles than planned the customer should win. However they've already paid for it in the monthly direct debits. I guess it's a nice feeling but in reality the price is the price just moved about to different stages of the vehicles life. I'll try to explain this below with some numbers:

Example - figures correct at the time of writing.

Stock Deal on a Peugeot Expert Professional. Based on a 3+47 profile, Finance Lease, 12 months Road Fund Licence and customer to maintain the vehicle.

Working on predicted mileage of 10,000/year we have a balloon of ￡7595+VAT and monthly rentals of ￡198.21+VAT (3+47 is 50 rentals) so adding up to ￡17,495 total over 4 years.

When we work on predicted mileage of 30,000/year the balloon drops to ￡5095+VAT and monthly rentals of ￡247.80+VAT so a total cost of ￡17485

So give or take 20p/month over 4 years the same cost but very different payment terms. Now the flexibility works BUT what if a business takes the lower milaege option BUT does 120,000 over the 4 years. Our estimate is the client falls short by 'around' ￡2500+VAT when it comes to sell which is around ￡52+VAT/month or about the difference in the rentals between the two.

The question is would they rather pay ￡10/week now OR potentially find ￡2500 to fund the difference in 4 years time?

Flexibility yes but it needs to be for the right reasons!

As always speak to a quality contact about funding your next vehicles...........we unravel the pub chat, remove the sales patter and just tell you how it is. Just like everything else in life - the truth is good enough.

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Rob Nugent is Director of Anthony K Vehicle Leasing a BVRLA registered vehicle leasing broker in Rochdale, Greater Manchester.

We help professionals and small businesses find the best car and van leasing deals.

Website: www.anthonyk.co.uk

Office : 01706 577040

Whatsapp: 07968 970704

Instagram: robnugent1

Twitter: @nugent_rob

Facebook: facebook.com/manchestercarleasing