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- Car Finance Glossary
- Finance Lease
This finance package gives you tax and VAT benefits and lets you own the car. Finance Lease is a vat free method of financing a vehicle, normally for vat registered businesses or companies and is recommended for companies switching from buying cars to leasing cars for VAT reasons. 100% VAT content is reclaimable (50% if the car is also used for private mileage). Up to 100% of rental can also be offset for business use. Vehicles funded under this finance option must be treated as an asset and shown on the balance sheet.
The monthly rental is determined by the cost of the vehicle, the period and the estimated future value of the vehicle which is based on the proposed annual mileage. A Finance Lease can be very flexible and payments can be made monthly, quarterly or annually throughout the lease period. The initial deposit is usually paid as a few months in advance.
At the end of the lease agreement the vehicle is sold. If the sale value is more than the "estimated future value" (similar to MGFV for PCP) then the proceeds are passed on to the business. If the sale value is less, the remaining balance must be paid to the lender.