Effectively we buy the asset for you and rent it back to you for an agreed period.
It is also worth noting the purchase being used to calculate the rental is the purchase price net of VAT. Thus, if you are looking to acquire a VAT qualifying car, if leased the rental is calculated on the net price of the car and not the gross. Generally, you will source the supplier yourself and after paying the documentation fees and the initial payment of a multiple of rentals, all of the remaining cost of the asset is spread over the agreed period in accordance with the ‘pause.’ VAT can be recovered subject to eligibility and as the finance company is the owner of the asset, you will not need to pay the purchase VAT an inception.
As with Hire Purchase, you can include a balloon payment to reduce the value of the primary rentals. At the end of the agreement you may have the option to enter into the secondary period. As you have generally covered the entire capital cost of the asset and hire charges (interest) in the primary period, should you wish to continue to use the asset, a secondary or peppercorn rental is charged. This rental typically approximates to 3% of the original cost and is a one off annual payment. As you are not the owner of the asset, you cannot sell the asset during the rental period. However, as you are generally covering the total cost and hire charges within the primary period, you will be entitled to a share of the sale proceeds should the leasing company allow you to sell on their behalf. Your share of the sale proceeds is usually agreed at inception and is typically 95-99%.