Finance Lease vs Business Contract Hire — What are your end-of-term options?

Summary: Approaching the end of a vehicle lease? Your choices depend on whether you have a finance lease or a business contract hire (contract hire). With a finance lease you commonly can buy the vehicle (paying a final/balloon sum), refinance the residual, trade or extend. Contract hire is designed for return and replacement — you typically hand the vehicle back, pay any excess‑mileage or damage charges, extend the term, or part‑exchange into a new contract. Read on for a practical, step‑by‑step breakdown of each option, how costs are calculated, and what to ask your broker or lessor before deciding.

Quick answer: return, extend, buy or trade — what you can do at lease end

Here’s the short version you can act on today:

• Finance Lease: most flexible at term end — buy outright (balloon/residual payment), refinance the final sum, sell/part‑exchange, extend, or enter a new finance arrangement.
• Business Contract Hire (Contract Hire): typically ends with you returning the vehicle; options are to return and pay any charges, extend the contract, or part‑exchange into a new hire agreement. Buying is rarely part of standard contract hire.

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Quick definitions — what is a Finance Lease and what is Business Contract Hire?

What is a Finance Lease?

A finance lease (sometimes known as a capital or finance-style lease) is an asset-based agreement where the lessee effectively takes on most of the risks and rewards of owning the vehicle for the lease term. Rentals are fixed and the contract often includes a final/balloon payment or a pre-agreed purchase mechanism. For accounting and tax purposes finance leases typically sit on the balance sheet and VAT/tax treatment depends on contract structure and business VAT status.

What is Business Contract Hire (Contract Hire)?

Contract hire is an operating lease arranged for businesses. The lessor retains ownership throughout. You pay fixed rentals (often with maintenance included if selected), and at the end you normally return the vehicle. Contract hire is designed for predictable monthly costs and fleet replacement — it rarely includes a standard purchase/ownership option.

Why the end-of-term choices differ

The key reasons the options differ are how risk and residual value are allocated and the contract aim:

• Ownership intent: Finance leases are structured to allow acquisition at or after term; contract hire is designed to return the asset.
• Residual value risk: Finance leaseholders often bear residual value implications; with contract hire the lessor carries residual risk but charges for excess wear or mileage.
• VAT and accounting: VAT recovery and balance-sheet treatment vary between products; get bespoke advice for tax-sensitive decisions.
• Maintenance & responsibility: Contract hire frequently offers maintenance packages; finance leases usually place maintenance and wear/repair responsibility with the lessee unless separately contracted.

End-of-term options with a Finance Lease — full breakdown

With a finance lease you generally have greater flexibility to acquire the vehicle or refinance its final cost. Your precise options depend on the terms in your lease agreement.

1. Buy the vehicle (pay the final/balloon payment)

Many finance leases include a final lump-sum or an agreed purchase price. Paying this sum transfers ownership to you. Advantages: you keep a known vehicle you already operate and avoid return charges; there may be long‑term value. Disadvantages: requires a larger one‑off payment and exposes you to depreciation risk if market value falls.

2. Refinance the residual/balloon payment

If you want to keep the vehicle but don’t have the cash, you can refinance the balloon through a lender or broker. This spreads the cost but adds interest and may require security. Our partners can help arrange refinance solutions for sums from £10,000 and upwards.

3. Trade in or sell the vehicle to settle the balance

You can sell the vehicle privately or part‑exchange with a dealer to raise funds to settle the lease. Tip: compare private-sale values against the residual amount to avoid shortfalls.

4. Return the vehicle (if permitted)

Some finance leases can be surrendered, but this is less common and usually requires a negotiated settlement figure or payment of outstanding amounts and fees. Always check the contract and obtain a settlement figure in writing.

5. Extend the lease or roll into a new agreement

You may be able to negotiate an extension with the lessor or part‑exchange the vehicle into a new lease/finance deal — useful for keeping proven vehicles without large immediate outlays.

End-of-term options with Business Contract Hire (Contract Hire)

Contract hire is designed to finish with a straightforward return. It gives predictable monthly costs, but fewer purchase rights.

1. Return the vehicle and pay any end‑of‑contract charges

At return your vehicle will be inspected for excess mileage and fair wear and tear. Charges apply for excess miles and damage beyond accepted standards. To reduce disputes, obtain a pre‑return inspection, keep service history and take dated photos.

2. Extend the contract

If you need more time to arrange replacement vehicles, short‑term extensions are usually available at a negotiated monthly rate.

3. Part‑exchange into a new contract hire agreement

Dealers and fleet providers commonly offer part‑exchange deals where the returned vehicle funds part of a new contract. This is often the simplest route for fleets wanting continuous replacement cycles.

4. Purchase options — generally not offered

Contract hire does not typically include a purchase option. If a lessor is prepared to sell at contract end it will be at market value and requires specific agreement — don’t assume buying is standard.

Practical examples and cost comparisons

These simplified scenarios show typical decision paths — use them to frame questions for your broker or lessor.

Example 1 — Courier van on a finance lease

Situation: High mileage and good residual value. Options: refinance the balloon if you want to keep the van; otherwise sell/part‑exchange to cover the purchase amount. If mileage is above expectations, buying may be cost‑effective versus paying excess‑mileage penalties under contract hire.

Example 2 — Director’s car on contract hire

Situation: Excess mileage incurred. Options: negotiate a short extension while deciding to part‑exchange into a new contract or accept excess‑mileage charges on return. Buying is usually expensive because purchase would be at market value and is not standard under contract hire.

Example 3 — Fleet operator with mixed products

Situation: Some vehicles are on finance lease, others on contract hire. Options: centralise end‑of‑term strategy — buy in certain cases where residual values are favourable, return others and part‑exchange to refresh fleet. Large fleets secure better trade/part‑exchange terms.

How UK Business Loans helps — match to lenders & brokers

UK Business Loans does not lend. We introduce businesses to lenders and brokers who specialise in vehicle finance, asset finance and fleet solutions for amounts from around £10,000 upwards. Complete our short enquiry and we’ll match you to the most appropriate partners quickly.

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We’re an introducer — not a lender or adviser. Completing our enquiry does not affect your credit score. UK Business Loans receives a fee only when you complete an enquiry.

Typical response: most enquiries receive contact from a matched broker or lender within hours during business days. Helpful details to have ready: vehicle make/model, mileage, contract end date, current monthly payments, and whether you want to keep, return or replace the vehicle.

Thinking about broader vehicle funding options? Learn more about vehicle finance and discover the right approach for your business on our vehicle finance page: vehicle finance.

What to ask your broker or leasing company at lease end

• What is the exact balloon or settlement figure (in writing)?
• Are there any early‑termination penalties or admin fees?
• How are excess‑mileage and damage charges calculated?
• Is a purchase option available and at what price (market value or fixed)?
• Can the residual be refinanced and what would the indicative rates be?
• Who will inspect the vehicle and can I get a pre‑inspection report?

Frequently asked questions

Can I buy a vehicle at the end of a business contract hire?

Usually no — contract hire generally excludes a purchase option. In rare cases a lessor may agree a sale at market value.

What happens if I exceed my mileage allowance?

You’ll usually be charged a per‑mile fee. Ask for a written estimate before returning the vehicle and consider buying if the buy‑out plus sale value works out cheaper than mileage charges.

Is VAT payable if I buy a vehicle at the end of a finance lease?

VAT rules depend on contract structure and your VAT status. VAT-registered businesses may be able to reclaim some VAT depending on usage and contract type — ask your tax adviser or broker for guidance.

Can I settle a finance lease early?

Yes, but there will usually be a settlement figure and potential fees. Obtain a settlement quotation in writing so you can compare early settlement vs continuing the contract or refinancing.

Who inspects the vehicle and applies charges?

The lessor or an independent inspector will carry out the end-of-contract inspection. Keep full service records and take dated photos to defend against unfair damage claims.

Will filling in UK Business Loans’ enquiry affect my credit score?

No — our initial enquiry is a matchmaking introduction and won’t affect your credit score. Lenders may perform checks if you move to a formal application.

Ready to compare your end-of-term choices?

Deciding at lease end affects cashflow and total cost of ownership. Avoid surprises: get written settlement figures, request a pre‑return inspection, and compare buy vs return costs. If you’d like a quick, no‑obligation match to brokers and lenders who specialise in vehicle and fleet finance (from £10,000+), we can help.

Start Your Free Enquiry — Free Eligibility Check

We’re an introducer — not a lender or adviser. Completing our enquiry does not affect your credit score. UK Business Loans receives a fee only when you complete an enquiry.

Author: UK Business Loans — Content last updated: 02 November 2025. UK Business Loans connects UK limited companies and businesses to lenders and brokers for business finance solutions. This information is general only and should not be treated as tax, legal or financial advice. For personalised advice, consult a qualified broker or tax adviser.

1. How does UK Business Loans help me find a business loan in the UK?
We’re an introducer that matches your quick, free enquiry to trusted UK lenders and brokers so you can compare business loans, asset finance and vehicle finance offers without applying to multiple providers.

2. Will submitting a UK Business Loans enquiry affect my credit score?
No — completing our free eligibility check is only an introduction and won’t affect your credit score unless you proceed to a formal lender application.

3. What types of finance can you connect my business with?
We connect businesses to lenders and brokers for business loans UK, asset and equipment finance, vehicle and fleet finance, invoice and cashflow finance, refinance and sustainability loans from around £10,000 to multi‑million pound facilities.

4. Can start‑ups or businesses with poor credit get matched to lenders?
Yes — many of our partner brokers and lenders specialise in start‑ups and cases with imperfect credit histories and will consider a range of eligibility profiles.

5. How quickly will I hear back after I submit an enquiry?
Most matched lenders or brokers contact enquirers within hours on business days to discuss options and next steps.

6. What information should I have ready to get accurate vehicle finance matches?
Have details such as vehicle make/model, mileage, contract end date, current monthly payments and whether you want to keep, return or replace the vehicle to speed up matching and quotes.

7. What’s the key difference between a finance lease and business contract hire at lease end?
A finance lease typically allows buying the vehicle (via a balloon/residual payment), refinancing or trading it, whereas contract hire is designed for returning the vehicle, extending the term or part‑exchanging into a new contract.

8. Can I buy the vehicle at the end of a business contract hire agreement?
Usually no — contract hire normally excludes a purchase option, though some lessors may agree a sale at market value in rare cases.

9. Can I refinance the balloon or residual payment on a finance lease?
Yes — the final/balloon payment can typically be refinanced through a lender or broker to spread the cost over time, subject to terms and eligibility.

10. Are the brokers and lenders you work with regulated and trustworthy?
Yes — we only introduce businesses to reputable, FCA‑regulated brokers and lenders who follow fair‑treatment standards.