Asset finance · Operating lease
Operating lease and contract hire for fleets and equipment
Lower rentals, no disposal risk, and a straightforward hand-back at the end of the term.
In short
Pay for the part you use
On an operating lease the funder takes a view on what the asset will be worth at the end of the term and builds that residual value into the deal. You fund the difference rather than the whole thing, so the monthly rental comes in below the equivalent hire purchase or finance lease.
At the end you hand it back. No advertising it, no haggling with a dealer, no risk that the second-hand market has moved against you in the meantime. For vehicles this is usually written as contract hire, and maintenance can be bundled into the same rental.
Operating lease — key terms
REF OL- Typical term
- 24 to 60 months against agreed mileage or hours
- Initial outlay
- Usually one to three rentals in advance
- VAT treatment
- Charged on each rental
- End of agreement
- Hand the asset back, subject to fair wear and tear and agreed mileage
- Balance sheet
- Off it for FRS 102 small entities; on it under IFRS 16
The funder carries the residual value risk, which is what keeps the rentals down. Excess mileage and damage charges are set out in the agreement before you sign.
Best suited to
When operating lease is the right call
- Fleets on a regular replacement cycle
- Businesses that want current specification and emissions standards
- Operators who would rather not carry residual value risk
- Work where predictable whole-life cost beats ownership
The detail
Mileage, condition and getting the hand-back right
Two things decide whether an operating lease is a good deal at the end as well as at the start: the mileage or hours you agree, and the condition the asset comes back in. Set the mileage too low and you will pay excess charges. Set it too high and you have spent three years paying for cover you never used.
We ask what the asset actually does in a normal week before we quote, and we walk you through the funder’s fair wear and tear standard so there are no arguments in three years’ time. That conversation takes ten minutes and it is the difference between a clean hand-back and an unexpected invoice.
- Lower monthly rentals than hire purchase on the same asset
- No disposal risk — the funder takes the asset back
- Maintenance can be bundled into a single rental
- Agreed mileage or hours, set against real-world use
- Newer kit, more often, on a predictable cycle
Common questions
Questions we get asked
You pay a pence-per-mile excess charge, which is set out in the agreement before you sign it. If you can see part-way through the term that you are going to overrun, tell us — it is often cheaper to re-profile the agreement than to settle the excess at the end.
Generally not. The funder has priced the deal on getting the asset back and selling it themselves, and that residual value is exactly what keeps your rentals low. If ownership matters to you, hire purchase or a finance lease is the better fit.
It depends how you report. Under FRS 102 as a small entity, operating lease rentals are typically treated as an expense and stay off the balance sheet. Under IFRS 16 almost all leases go on. Your accountant will know which applies to you — we will give them the figures they need.
Where to next
Related to this
Next step
Talk operating lease through with someone who does it daily
Send the make, model and price and we will come back with indicative terms — usually the same working day.