Do you feel like you’re being bombarded with monthly payments that make no sense? What is the true cost of leasing?
There is a reason behind this. Manufacturers will often insist that dealers and brokers only market their vans using a monthly lease payment and never a headline discounted cost. In fact, the best discounts are often only made available if supplied on a Lease product.
You may be wondering why this is?
If a manufacturer needs to sell over aged stock, they could get their dealers to have a sale. They may advertise a van with a retail price of £25,000 + VAT for as little as £16,500 + VAT and that would be a great deal! But this would have a negative effect on the second-hand value of the van.
Manufacturers don’t like to advertise big discounts as this devalues their product. They must keep second-hand values high because this dictates the balloon payment that allows us to advertise low monthly payments. Just imagine what would happen if Rolex sold all their watches at half price for 6 months!
It is also easier for us as we just advertise a monthly rental; we are not legally obliged to show the price of the van, interest rates or final payments. So, make sure you add up the sum of all the rental payments and compare deals on the total repayable not just the lowest payment. But don’t worry you’re still getting a great deal and because residual/second-hand value is protected, everyone is kept happy.
How interest is calculated on a Lease with a balloon payment
This example is a typical lease with a yield of 6.73%, similar to the APR interest rate shown on an HP agreement.
5-year term 60 rentals with a balloon payment
|Van Cost||£19,000.00 + VAT|
|Initial Rental (deposit)||£4,000.00 + VAT|
|Balance financed||£15,000.00 + VAT|
|Balance to be repaid||£10,000.00 + VAT|
|*A Interest Charges on the above||£2,325.00 + VAT|
|Balloon payable end of term||£5,000.00 + VAT|
|*B Interest Charge on Balloon||£1,162.50 + VAT|
|*A+B Total interest||£3487.50 + VAT|
|*Interest plus balance to be paid||£13487.50 + VAT|
|Above divided by 60 x payment||£224.79 + VAT|
|Total amount payable £22,487.40 + VAT|