How does financial lease work?
It starts with a vehicle that suits your work and budget. You then agree on the financing arrangements, including the purchase price, any deposit, the contract term and an optional balloon payment.
At Lease Point, we guide you through the process:
Choose your vehicle.
Find a passenger car or commercial vehicle that suits your business.
Discuss your requirements.
Together, we review your budget and financing preferences.
Receive a lease proposal.
This sets out the monthly payment, interest rate, contract term and any additional charges.
The lender assesses your application.
Once the application is approved, the agreement is signed and the remaining requirements are met, delivery can be arranged.
This gives you a clear understanding of your commitments and the steps involved.
Do you own the vehicle?
With financial lease, you are the economic owner. The vehicle is recorded as an asset on your business balance sheet, while the financing is recorded as a liability. You bear the risk of the vehicle losing value. [9]
Legal ownership depends on the type of agreement. Under a hire purchase agreement, legal ownership transfers to you once all instalments and any balloon payment have been paid. With a loan secured by a pledge over the vehicle, you may become the legal owner from the date of purchase. [3]
Which costs are involved in financial lease?
Your monthly financing payment consists of principal repayments and interest. With a fixed-rate agreement, the agreed monthly payment remains the same throughout the contract term. [5]
When calculating your total vehicle budget, also allow for:
Vehicle insurance and road tax.
Maintenance, repairs and tyres.
Fuel or charging costs.
Any deposit and balloon payment.
Any agreement fees listed in your proposal.
Under financial lease, you are generally responsible for the vehicle’s running costs. Always check exactly what your proposal includes. [8][9]
At Lease Point, we help you find financing that fits your budget while leaving room for the day-to-day costs of using the vehicle.
What is a balloon payment?
A balloon payment is an amount you repay at the end of the contract term. It reduces your regular monthly payment, but interest is still charged on this outstanding amount throughout the term. [4]
Here is a simple example:
Item | Example amount |
|---|
Purchase price of a car sold under the VAT margin scheme | €30,000 |
Deposit | €5,000 |
Amount financed | €25,000 |
Agreed balloon payment | €5,000 |
In this example, you repay €20,000 through your regular instalments over the contract term. You also pay interest. At the end of the agreement, you repay the remaining €5,000.
A lower monthly payment does not automatically mean a lower total cost. Plan how you will pay the balloon amount in advance, as the vehicle’s future resale value is not guaranteed. [4]
How do VAT and tax work?
For a vehicle with separately stated VAT, VAT is generally charged at delivery under a financial lease arrangement. Whether you can reclaim it, and how much, depends on your entitlement to deduct VAT and how the vehicle is used. VAT is not charged again on the regular financing instalments. [1][8]
For a vehicle sold under the VAT margin scheme, no separate VAT amount is shown on the purchase invoice. You therefore cannot reclaim VAT on the purchase. [2]
Depreciation, interest and business running costs may also be deductible from your taxable profit. Principal repayments are not deductible expenses: they reduce the outstanding financing debt. If you also use the business vehicle privately, a taxable private-use benefit and a VAT adjustment may apply under Dutch tax rules. [1]
What is the difference between financial lease and operational lease?
Financial lease finances the purchase of a vehicle. Operational lease is more like renting: you pay to use the vehicle and generally return it at the end of the agreement. [3]
The right choice depends on your plans. If you want to keep the vehicle for longer, arrange maintenance and insurance yourself and take responsibility for its residual value, financial lease may suit your needs.
If convenience and having more services included in one monthly payment are your priorities, consider full operational lease as well. Always compare the included services, contract terms and total costs.
Can a new business qualify for financial lease?
New businesses can also qualify for financial lease. [7]
Do you not yet have annual accounts? At Lease Point, we can explore your options and explain which information is needed for the assessment. A suitable vehicle, an affordable monthly payment and, where appropriate, a deposit provide the starting point for that discussion.
