Finance Lease

A finance lease is a form of flexible leasing to fund the use, but not the ownership, of a vehicle and is ideally suited for VAT registered businesses. The leasing company (lessor) hires the vehicle to the customer (lessee) for an agreed period of time (the primary period of hire) for an agreed monthly sum. A balloon payment can be added to reduce the rentals. The balloon payment is the responsibility of the hirer, it is not a guaranteed future value like on a PCP.


  • Deposit - there is usually a minimum deposit of 3 rentals in advance
  • Fees - there are usually fees attached to a Finance Lease agreement
  • Payments - rentals are fixed for the duration of the agreement
  • Mileage - there are no mileage restrictions on a Finance Lease
  • Insurance - the vehicle will need to be comprehensively insured for the period of hire
  • Condition - the customer must keep the vehicle in roadworthy condition
  • Interest Rate - the interest rate is fixed for the duration of the agreement

Early Settlement

A Finance Lease agreement can be settled at any time by the customer by paying the balance of finance outstanding to the lender. The lender may allow the customer a rebate of the interest if the outstanding finance balance is settled before the agreement end date. If it is a Dinance Lease agreement regulated by the FCA, then the minimum amount of rebate will be set out in the FCA's ruled. You can make additional payments & receive a corresponding reduction in interest.

End of the agreement

  • Return - the vehicle to the Leasing Company who will sell it and refund any surplus sale proceeds to the cutomer, usually 95% of the sold price. If the value of the vehicle is in negative equity (only likely to happen if there is a balloon) then the hirer is liable for any shortfall.
  • Sell - the vehicle to an independent third party. The hirer receives the full sale proceeds and refunds the Leasing Company a fixed percentage, usually 5% of the sold price.
  • Continue - to use the vehicle for as long as they want on a payment of an annual secondary period rental (commonly known as a peppercorn rental). This is normally the equivalent of one monthly rental. This option is not normally available where there is a balloon rental payable.

Voluntary termination

There are no voluntary termination rights with a FInance Lease.