Finance lease
Finance lease lets UK businesses use vehicles, machinery and equipment over a fixed term without a large upfront cost. We compare offers from 80+ lenders and help you choose between finance lease, hire purchase or operating lease to fit your cash-flow and tax position.
Last updated: October 2025, edited by Joe Morley, reviewed by Vivek Seda
Trusted by over 17,000 customers
Finance lease: what it is and how it works
Key features
Finance lease gives long-term use with predictable rentals and flexibility at term end (extend, upgrade, or sell on behalf of the lessor) — no automatic ownership.
Typical term: 24–72 months (case-dependent)
Assets: vans, HGVs, plant, machinery, IT, fit-out and more
Upfront: usually lower than HP; VAT typically spread across rentals (per agreement)
End-of-term: extend, upgrade, or sell/return per contract (no automatic title)
What is a finance lease?
A finance lease is a type of asset finance where a business rents an asset from a lender or leasing company for most of its useful life. The lender purchases the asset and leases it to your business for an agreed term. You make regular payments to use the asset—but you don’t own it.
At the end of the lease, you typically have the option to:
extend the lease on a rolling basis
upgrade to a newer model
return the asset
Ownership remains with the lessor, which can have accounting and tax advantages.
Finance lease example
Let’s say your company needs a delivery van costing £30,000. A finance lease allows you to lease the van over 4 years with monthly payments of £700. At the end of the term, you can extend the lease, upgrade to a new van, or return it to the lender.
Why choose a finance lease?
Ownership
For assets with a long useful life, it's a good option to choose a finance lease. But why not go for an operating lease? In a finance lease agreement, ownership of the asset is transferred to the lessee at the end of the lease term. In contrast, in an operating lease agreement, the ownership of the asset remains during and after the lease term with the leasing company.
Flexible payments
Flexible payments are one of the benefits of a finance lease. Lenders will work out payment plans that suit your business and cash flow needs.
End-of-term options
There are also flexible end-of-term options. What does that mean? In essence, this means that you can return the asset to the lender for resale, sell it to a third party, or choose to go for a secondary lease period.
Common use cases
Commercial vehicles
Vans, HGVs, and electric vehicles - finance leases are often used by logistics, trades, and courier companies.
Construction and industrial machinery
Businesses in building, engineering, or infrastructure often lease excavators, cranes, or forklifts to avoid large capital expenditure.
Technology and IT
Finance leasing allows companies to stay current by upgrading servers, telecoms equipment, or laptops every few years.
Office fit-outs and furniture
Desks, chairs, printers, and even lighting systems can be financed without tying up working capital.
Is finance lease right for your business?
A finance lease could be a good option if your business:
Needs access to high-value equipment
Prefers not to own the asset outright
Wants predictable monthly repayments
Is seeking tax efficiency (lease rentals are often deductible)
May want to upgrade or return the asset after a fixed period
However, it may not be ideal if you plan to retain the asset long-term, in which case hire purchase or asset refinance might be better suited.
Finance lease vs hire purchase
Feature | Finance lease | Hire purchase |
Asset ownership | Never (unless sold separately) | Yes (after final payment) |
VAT payment | On monthly rentals | Upfront on total asset |
Flexibility to upgrade | Yes | No |
Off balance sheet? | Sometimes | Usually not |
Common for | Vehicles, machinery | Long-life assets |
Costs & fees — what to expect
Rentals: fixed by asset price, deposit/advance rental, term, and residual value assumptions
Fees: arrangement, documentation, delivery/valuation; early termination/transfer fees may apply
VAT & tax: VAT/tax treatment varies by structure (e.g., rentals vs capital allowances) — get professional advice
Use our asset finance calculator to estimate monthly costs.
Eligibility & documents
Eligibility: UK business (Ltd/LLP/sole trader), affordability aligned to rentals, acceptable credit profile, asset acceptable to lender. Documents: director ID & address, bank statements, accounts/management info, VAT returns (if registered), asset quotation/spec, existing borrowing details.
Benefits of a finance lease
Elements to consider
Benefits | Considerations |
Spread the cost of essential assets | You never fully own the asset |
Preserve working capital for growth | You’re responsible for maintenance and insurance |
Access up-to-date equipment | Total cost may exceed outright purchase |
Improve budgeting with fixed payments | Early termination fees may apply |
Possible tax advantages (rental deductions) | Interest and fees vary by lender |
Finance lease vs hire purchase vs operating lease
Use this to pick the right structure for your use-case.
Product | Best for | Ownership | Upfront & VAT | Mileage/usage limits | End-of-term |
Long-term use with flexibility | No title | Usually lower upfront; VAT often on rentals | Typically none | Extend, upgrade, or sell on lessor’s behalf (rebate rules apply) | |
Eventual ownership | Yes (after final payment) | Deposit; VAT usually upfront on asset price | None | Own after final payment | |
Operating lease (contract hire) | Lowest monthly + frequent refresh | No title | Initial rental; VAT on rentals | Yes (excess charges) | Return/upgrade; maintenance often included |
End-of-term options (finance lease)
Those are the options:
Extend on a secondary rental
Upgrade to newer kit
Sell on behalf of lessor and receive a rebate of rentals as per contract
Return if allowed by your agreement
Alternatives options
Hire purchase
Spread the cost and gain ownership at the end, often after a nominal option to purchase fee. Suited to assets you plan to keep long term. Learn more about hire purchase.
Operating lease
Shorter than a finance lease with lower rentals because the lessor expects residual value. Often includes maintenance and upgrade options. Learn more operating lease.
Equipment leasing
Operating leases are the simplest form of equipment leasing, where the customer doesn't take on the risks and rewards of owning the asset (such as maintenance costs).
Revolving credit facility
Draw down funds when needed, repay, and re-borrow. A flexible alternative to a fixed-term loan.
Unsecured business loans
No collateral required, based on your credit profile.
Asset finance
Asset finance is used to fund vehicles, machinery and equipment.
How does Funding Options work?
Tell us how much you need
We’ll ask a few questions about your business and the reason for your loan.
Get quotes instantly
Our smart technology will compare quotes from up to 80+ lenders to help you find the ideal business loan.
Apply for a Business Loan 🎉
We'll be there to guide you through every step of the process.
Why choose Funding Options by Tide?
Funding Options by Tide helps UK SMEs find fast, tailored business finance by connecting them with over 80 trusted lenders. Backed by Tide and FCA-regulated, the service is free and easy to use.
Compare 80+ UK lenders in minutes
We scan the market so you don’t have to, finding the right option for your business.
Trusted by 17,000+ UK businesses
From startups to established SMEs, we’ve already helped secure over £1bn in funding.
FCA-regulated and Tide-backed
We operate as a credit broker, not a lender, giving impartial access to multiple finance products.
Excellent customer experience
Our Trustpilot rating is 4.8 out of 5, based on 1,300+ independent reviews.
Personalised support
Our team can guide you through the process and help you choose the finance that fits your needs.
How to apply with Funding Options by Tide
No fees for comparing and no obligation to proceed.
Tell us about your business and the funding you need.
Compare tailored offers from 80+ UK lenders.
Provide documents for underwriting.
Finalise your facility and receive funds quickly.
Learn more about financial leasing
What’s the main difference between a finance lease and HP?
HP ends with ownership after the final payment; finance lease gives long-term use with flexible end options, but no automatic title.
Does a finance lease have mileage limits?
Usually no (unlike contract hire), but fair-use/return conditions can apply — check your agreement.
Can I finance used assets?
Often yes (age/condition limits apply). Lenders will assess valuation and resale risk.
Is VAT paid upfront?
With many finance leases, VAT is spread across rentals; HP typically requires VAT upfront on the asset price. Always confirm with your lender/adviser.
Can I upgrade before the end of term?
In many cases yes, subject to settlement and the new agreement.
Will I need a personal guarantee (PG)?
Often for SMEs; security and company profile can reduce PG requirements (case-by-case).
How fast can I get approval?
Some providers can approve/fund in days once docs and (if needed) valuation are complete.
Will applying affect my credit score?
Initial checks may be soft; proceeding with a specific offer usually involves a hard search.
Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.
It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.
Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.
Vivek Seda
Business Finance Manager
Vivek is the Asset Based Lending Manager at Funding Options by Tide. Vivek has been in the industry for over 10 years, working for both lenders and brokers. His product specialisms cover Asset Finance, Invoice Finance, Property Finance and structured transactions.