A Drivelease Finance Lease is a way of funding a vehicle that is typically done by VAT-registered businesses and companies, sole traders and partnerships can also take advantage of method too. It is a form of business car finance where the vehicle remains the property of the finance company, with the vehicle effectively being hired out. The business can then use this asset while paying a rental rather than a repayment on the vehicle.

Drivelease Finance Lease differs from conventional contract hire in that you usually have what is known as a ‘balloon payment’ at the end of your lease agreement. You agree with the finance company how much your balloon payment will be, depending on whether you want higher or lower monthly payments during the term of the contract. In this sense it is more flexible than a contract hire agreement.

The monthly rental is determined by the initial cost of the vehicle, the term of the finance lease, the residual value, and the final balloon payment (not necessarily the vehicle’s residual value). As a residual value is used to calculate your monthly rental, most finance companies will insist that you stick to an agreed mileage limit as this is used to determine the future sales value of the vehicle.

At the end of the finance lease agreement the vehicle is sold to a third party by the finance company. If the sale price is above the agreed balloon payment then the finance company will refund a percentage of the proceeds back to the hirer. In the event that the sale price is below the balloon payment then the hirer will be liable to make a further payment to the finance company. This way, a company with a finance lease agreement shares more of the risk of the vehicle but can also potentially profit if the car exceeds its RV.

As an alternative you can agree to re-lease the vehicle again from the finance company on what is known as a peppercorn rental.

There are numerous benefits to acquiring a Drivelease Finance Lease which include:

Lower monthly costs and initial outlay: One of the main reasons why companies choose finance lease agreements is to avoid large capital outlay.

Flexibility: The majority of finance companies will offer a number of payment options to suit your cash flow. You can make deferred payments, lowering the monthly rental with a balloon payment at the end of the contract, or you can pay the entire cost in monthly instalments.

Latest vehicles: You will be able to access a wider choice of the latest prestige and performance vehicles that may otherwise have been unaffordable.

VAT payments: Up to 50% of the VAT payments can be reclaimed.

Balance sheet: A finance lease agreement allows you to show the vehicle on your balance sheet as an asset with outstanding rentals represented as a liability.

Hire rental tax allowances can also be applied for in some cases.

Sales proceeds: You can increase your equity by receiving a proportion of the sale proceeds at the end of the finance lease agreement.

There can also be some disadvantages to finance leases too. You will never take ownership of the vehicle as the car or van must be sold to a third party not named on the agreement. Another disadvantage is that the hirer also takes on the administration and operating risk associated with the vehicle, including the additional cost of annual road fund licence.