The lowdown on finance lease:
- Advantages include: Minimum capital expenditure;
- Flexible funding: choose low monthly payments followed by a ‘balloon’ payment; or larger payments and get a rebate at the end of the agreement
- Accurate monthly budgeting;
- A fixed interest rate is available on some contracts;
- Reduced administration;
- Optional replacement vehicle cover in event of breakdown
- Disadvantages: You will never own the vehicle as it must be sold to a third party at the end of the agreement;
- Operating risk associated with the vehicle;
- Interest rates can vary on some contracts
WHEN the time comes to buy a new van, whether just the one or a fleet of them, it’s vital to find the most suitable way for your type of business to fund it.
At the time of purchase there may or may not be some vantastic deals but there are certainly a variety of different ways to pay for the new vehicle.
One of those is finance lease. So what is it and what are the pros and cons?
Finance lease is popular with van operators. And you can understand why. It’s a very flexible form of van finance, which provides similar cash flow and VAT advantages of contract hire and so is seen as a good compromise between the two.
Just like contract hire you pay a deposit followed by fixed monthly payments.
You have a choice of either going for lower monthly payments followed by a large payment at the end of the lease – this is called a balloon payment – which is normally covered by the sale of the van, or paying more each month and then getting back up to 95 per cent of the price the van is sold for in the form of a rebate from the rental company.
If you opt for the second choice and, at the end of the agreement, think there is still plenty of mileage left in the van, you can always enter into a secondary rental period. This is often called a ‘peppercorn’ rental as it costs very little.
Finance lease is a very popular choice for VAT registered companies as they can generally claim back 100% of the VAT on commercial vehicles (subject to no private use).
How finance lease worked for the water company
South West Water had previously outsourced its leak detection operation and when it decided to bring it in-house to show its commitment to this strand of the business it needed 54 new vans – specially fitted out at that.
All 54 Peugeot Partner SE L2 HDi92 vans were supplied by local Peugeot dealerships Hawkins Motors in St Austell and Truscotts Group, with conversion by Hawkins – emphasising South West Water’s commitment to local suppliers – and equipped with specialist leak-detection equipment and traffic management signs and bollards to cater for roadside incidents.
That could be a big spend in one hit but South West Water has a considerable van fleet, such is the nature of its business, and since 2001 Peugeot has been its primary supplier of light commercial vehicles.
Bespoke five-year 100,000-mile finance lease scheme and maintenance agreement
And so the 54 Partner vans have been funded by Peugeot Contract Hire via a bespoke five-year 100,000-mile Finance Lease scheme and maintenance agreement that was specifically developed for South West Water.
Mark Karkeek, South West Water transport manager, said: “Faced with the opportunity to specify a whole new bespoke range of vans for this purpose provided us with a chance to do things quickly and utilised the expertise of our suppliers, helped by having first-hand experience of the durable Peugeot Partner van. Getting them modified for purpose by Hawkins, our local Peugeot dealer, who converted the vehicle with our specific and exacting conversion requirements, was greatly appreciated.”
Nick George, national key account manager at Peugeot, said: “While we work hard to satisfy our customer’s needs, the requirements and circumstances presented by South West Water provided us with an opportunity to tailor elements to suit their demands, and with the help of their local Peugeot Dealerships we have achieved great customer service and enhanced our working relationship.”