What is Financial Lease?

Financial Lease is similar to a hire purchase scheme, but without the option to purchase. The length of the agreement is usually calculated over the “useful life” of the vehicle, with monthly payments reflecting the vehicle life. Financial Lease can either be fully amortised - having a depreciating effect on the entire capital - or with a balloon - recognising the residual value of the vehicle in its calculations. The lessee is charged with any shortfall or credited with any excess on disposal of the vehicle. In addition to the Financial Lease Agreement, most companies will employ a Fleet Management specialist who can purchase, maintain and dispose of the vehicle.

What are the Benefits?

• Customer does not have to source the funding
• User can decide when to terminate the contract
• No excess mileage charges
• Opportunity to benefit from gain on sale (A leasing agreement where the risks and rewards of ownership remain with the customer)
• Customer can claim Capital Allowances (CA) in some cases
• Interest cost allowable as a tax deduction in some cases
• Highly competitive variable or fixed interest rates result of BMW Group’s triple A credit rating

Summary

A low cost acquisition method and the cheapest form of acquisition for fleets of over 100 vehicles in size. The tax relief for depreciation could be financially more favourable than claiming capital allowance.