How does an Operating Lease work?

How Operating Lease works

In common with Finance Lease, an Operating Lease lets you rent the asset from us for the duration you require it.

The main difference lies in the fact that an Operating Lease covers only a portion of the asset's total useful life meaning you pay a lower rental fee because it's calculated based on the difference between the asset's initial purchase cost and its residual value at the agreement's end.

You enjoy complete access to the asset for your required duration, without the obligation of managing its disposal or recovering its residual value.

Benefits of an Operating Lease

Low upfront cost: Get the asset you need quickly without a large initial payment.
Freedom: Enjoy full use of the asset without the need to purchase it outright.
Flexibility: Choose to rent again, buy, or return the asset when the lease ends.
Lower expenses: Rental fees are decreased since they're based on a fraction of the original purchase price.
Cost reduction: Reclaim VAT on lease payments, helping to cut overall expenses.

An example of how Operating Lease can work for you

Let's say you run a small business and need a new delivery van. Instead of purchasing it outright, you opt for an operating lease. Here's how it works:

Agreement: You sign a lease contract with us for, let's say, three years.

Low Initial Cost: Instead of paying the full purchase price upfront, you make smaller monthly lease payments.

Use of Asset: You get full use of the delivery van for your business operations during the lease term.

Flexibility: At the end of the lease period, you have options:

You can return the van
You can renew the lease for another term
You may have the option to purchase the van at its residual value, which is typically lower than the initial purchase price

Lower Costs: Because the lease payments are based on a portion of the van's value and not its full price, you end up paying less overall compared to buying it outright.

Tax Benefits: Depending on your location and tax laws, you may be able to reclaim VAT or deduct lease payments as a business expense, further reducing your costs.

Overall, an operating lease allows you to have the asset you need for your business with minimal upfront costs and added flexibility at the end of the lease term.

Finance is secured against the asset and/or equipment. If you're unable to keep up with your payments we may repossess the asset and/or equipment.

Products and services are subject to eligibility, status, terms and conditions and availability. All lending is subject to status and our lending criteria. The right to decline any application is reserved.

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