What is finance lease?
A finance lease allows you to rent an asset for the duration of its economic lifetime, paying back its full value in monthly instalments with interest added. Rather than owning the asset, your business will pay a monthly fixed rental cost for the duration of the assets useful lifetime. The asset will remain the property of the lender throughout the entire agreement.
How it can work for your business
We can tailor your finance plan to suit your monthly affordability and cash flow. You can decide to either pay the full cost of the asset (including interest) over the agreed lease period or pay lower monthly rentals with a final lump sum repayment to make when the lease is up.
At the end of the finance term, you will have the option to either sell the asset onto a third party, which allows your business to benefit from any remaining equity, or to pay the residual value of the asset in full or under a secondary rental agreement.
What is a residual value and how does it work?
When the lease is taken out an estimated residual value is agreed upon. This is an estimate of how much the asset will be worth at the end of the contract and is owed to the lender after all regular monthly payments have been made on the lease. Applying a residual value will help to make your monthly repayments cheaper and easier to manage.
If your business can’t afford to make the residual value payment in full at the end of the term, or if you’d like to continue using the asset, you have the option to take out a secondary rental agreement. This is where you take a new loan out to repay the residual value (also known as a peppercorn agreement).