What is a finance lease?


A finance lease is a type of car finance agreement that is designed for businesses, including sole traders, partnerships and the self-employed that need new cars. It’s not available for a personal lease, as a finance lease is created only for business needs. It’s a flexible way to pay for a car, especially if you’re short on funds and don’t need to own the vehicle at the end of a finance agreement or right away.

How does a finance lease work?

Similarly to regular monthly car finance repayments, you’ll typically need to pay for the finance lease each month. There are two ways you can choose to pay – either pay for the entire value of the car plus any interest charges or pay lower monthly car payments with a balloon payment at the end of the agreement.

Monthly payments are calculated by considering factors, such as the length of the lease, the car’s value and cost, as well as the end balloon payment.

Before signing the agreement, you’ll need to select the length of the agreement and mileage use (usually for a year).

Finance lease benefits

  • Businesses that are Value Added Tax (VAT) registered can claim up to 50% finance lease payments back for cars and up to 100% for commercial vehicles
  • Lower monthly payments when compared to other car finance types
  • Pay lower initial rental (deposit) or in some cases, don’t need to pay it all

Finance lease considerations   

  • Will need to stick to the agreed mileage limit and return a car in a good condition
  • Finance company remains the owner of a car
  • If you decide to end the contract earlier, there may be extra charges

What happens at the end of the contract?

The car is usually sold to a third-party and if it’s for more than you’ve paid for, you can get profit from the sale. However, if the value is below what you’ve paid, then you’ll be liable to pay the difference.

Finance Lease FAQ

Is it better to lease or finance a car?

This depends on your business needs. Firstly, financing a car is more expensive when compared to leasing. Additionally, with leasing, you can get a new car for cheaper than with Hire Purchase or Personal Contract Hire. However, if you want to have an option to own a car at the end of the contract, financing a car works out cheaper in the end than keep leasing a car.

Can you lease a car with no deposit?

Yes, many companies including Stoneacre Leasing offer brand-new cars with no initial rental fee, so you’ll only need to pay monthly payments.

Is financial lease cancellable?

Usually, it’s not possible to cancel it until you’ve paid off all the remaining monthly payments in full. However, it’s always worth speaking to the finance company to see if any alternatives can be arranged.