There are two types of Finance Lease - Balloon and Full Pay Out – Discover which option is best for you.
Finance Lease full pay out is a rental agreement that gives you the opportunity to share in the sales proceeds at the end of the agreement. At the end of your agreement you have two options. You can enter into a secondary rental period, paying an annual rental and retain the use of your vehicle, or you can sell the vehicle on behalf of Volkswagen Commercial Vehicle Financial Services to a selected third party and receive a percentage of the sales proceeds.
Finance Lease ‘balloon’ repayment offers lower monthly rental payment than a full pay out agreement. At the end of your agreement, you may sell the vehicle on behalf of Volkswagen Commercial Vehicle Financial Services to a selected third party and then settle the final ‘balloon’ repayment. You can then share in any excess sales proceeds. Or you can settle the ‘balloon’ repayment and then enter into a secondary rental period, paying an annual rental and retain the use of your vehicle.
How does Finance Lease work?
Finance Lease - Full Pay Out
'Finance Lease - Full Pay-out' enables you to lease a vehicle for a set period of time, before selling it to benefit from a percentage of the proceeds.
You first decide your initial rental, how long you want to lease the vehicle and your annual mileage. These figures are then used to calculate the total cost which is then split evenly over the term of your agreement.
It is 'Full Pay Out' as there is no final balloon payment, the cost of leasing is evenly split across the term.
At the end of your agreement you have two options:-
1. Enter into a secondary rental period, paying an annual rental and retain the use of your vehicle;
2. You can sell the vehicle on behalf of Volkswagen Financial Services to a selected third party and receive a percentage of the sales proceeds.
Finance Lease - Balloon
'Finance Lease - Balloon' lowers the monthly payment by deferring a chunk of the repayment to the end of the agreement. This has to be paid, irrespective if the proceeds of the vehicle sale covers it.
As with 'Full Pay Out' you decide your initial rental, how long you want to lease the vehicle and your annual mileage. The total cost of leasing your vehicle is then split into a set amount of equal monthly payments across the term, and a final balloon payment.
It is a 'Balloon' agreement, as part of your finance is deferred into a larger balloon payment at the end of the agreement.
At the end of your agreement you have two options:
1. Sell the vehicle on behalf of Volkswagen Financial Services to a selected third party and use the funds to settle the final ‘balloon’ repayment. If the proceeds from the sale do not cover the balloon payment you need to make up the difference, however if the proceeds exceeded the balloon payment you get to share of the reward;
2. Settle the ‘balloon’ repayment without selling the vehicle and enter into a secondary rental period, paying an annual rental and retain the use of your vehicle.
The benefits of Finance Lease
When the vehicle is sold at the end of the agreement, any surplus funds are split between us.
If you are leasing as a business customer, there are several tax benefits which you can take advantage of.
If you get to the end of the agreement and don’t want to part with your vehicle, you are able to extend with a secondary rental period.
With two options, you can either look to benefit from lower monthly payments or no larger final payment depending on your circumstances.
Would Finance Lease suit me?
Finance Lease is a product which enables you to lease a vehicle but also benefit from its sale. It may be the best option for you if:
- You can benefit from claiming tax back
- You want the opportunity to benefit from the sale of the vehicle
- You do not want to own the vehicle at the end of your agreement
The end of your agreement
Sell your vehicle
With a Finance Lease agreement you are required to sell the vehicle to a non-financially related third party at some point during your agreement and the process of doing this must go through Volkswagen Commercial Vehicles Financial Services.
If the vehicle is sold on for greater than the figure required to settle your finance, you will receive 100% of the excess, however if there is a shortfall we will invoice you for the difference.
Obtain your current settlement figure here
Once you have found an independent 3rd party to sell the vehicle. Obtain a sales invoice here
Important things to consider:
- Invoices take 48 hours to be generated and will be issued to the third party directly.
- Payment for the invoice should be made to us directly (bank account details are included in the invoice) and upon receipt of this we can then look to terminate the agreement.
- If the invoice amount exceeds the outstanding finance, you will be sent 100% of the proceeds however should there be a shortfall we will invoice you for this separately.
Extend your agreement
At the end of your agreement you have the option to fall into your ‘secondary hiring’ period. If you have a Finance Lease Balloon product, the balloon must be paid in full by yourself before you can enter into the secondary hiring period. The secondary hiring period consists of an annual rental (also known as a ‘Peppercorn’ rental) for a maximum of 5 years. The vehicle can be sold at any time during the 5 years secondary hire period, this must again be to third party.
Finance Lease Balloon Only
If you do not wish for us to bill the balloon amount from your account on the end of contract date, you need to request a sales invoice at least 2 weeks before the end of contract date.
You also have the option to extend on a short term basis providing the balloon has not billed. If you would like to explore this option, please contact the team at Volkswagen Commercial Vehicle Financial Services.