Finance Lease

What is Finance Lease?

A finance lease is a contract in which a finance company (lessor) buys an automobile, machinery, or equipment to an organisation (lessee) in return of monthly instalments for a fixed period.

This is an excellent alternative for organisations that want costly assets but do not want to buy them outright. If you buy automobiles, machinery, and equipment on lease for business use, you can use the finance lease option.

How Does Finance Lease Work?

In a finance lease, the financing firm remains the owner of the leased assets. The lessee is only authorised to use the asset until the expiry of the contract. However, the lessee owns the risks and benefits associated with the asset. Furthermore, the lessee can show the asset in the organisation’s balance sheet. All outstanding rentals will appear in the balance sheet as a liability.

Getting More Finance Lease Details

You can contact our experts to discuss your options and learn more about finance leases.

Need help? Call us on +44 (0)1274 214834

Characteristics of Finance Lease

There are mainly two finance lease agreements: a residual value lease and a fully amortised lease.

You Can Lease With a Residual Value

In a residual value lease, the monthly rental accounts for the declining value of the asset. At the end of the contract, a final balloon payment has to be paid as per the expected residual value. The lessor must reimburse a portion of the revenues if the asset’s value at the time of sale exceeds the preset balloon payment. The lessee will be responsible for the difference if the price exceeds the balloon payment.

A Lease That Has Been Fully Amortized

The lessee needs to pay back the full capital cost of the asset and service charges as a monthly fee during the contract time with a fully amortised lease. The lessee is responsible for the maintenance of the asset and any damage to the asset. It is good for the lessee to obtain insurance that covers all potential damages that may occur during the lease time. Our team will also help you with maintenance contracts.

What Happens After the Leasing Ends?

At the completion of the finance lease contract, the lessee can return the asset or extend the lease. The asset is often returned to be sold if a financing lease extension is not necessary. The lessee can also help the lessor sell an asset to a third party. You may be eligible for a rental rebate equal to a portion of the sales proceeds, depending on the conditions of the original finance leasing arrangement.