Posted by Mary Tinsley on Fri, Nov 9, 2018 @ 10:54 am

What’s the difference between balloon & closed-end leases?

LCV_Finance_Whats_the_difference_between_balloon_and_closed-end_leases.jpg


If you’ve been looking into acquiring one or more LCVs, you’ve probably come across the terms ‘balloon lease’ (or ‘open-end’ lease) and ‘closed-end’ lease.

We’re often asked what the difference between the two actually is, so we’ve written this blog post to help you understand how each works — and what the benefits and drawbacks of each really are.

Two different types of vehicle finance leasing

Vehicle leasing can be an attractive option for businesses large and small. The latest statistics from the BVRLA show YoY growth, with nearly 300,000 cars and vans leased to UK companies at the end of 2017.

If you want to buy a vehicle and you don’t want to stump up the full purchase price all at once, you’ll normally choose to go down the finance leasing route.

Finance leasing allows you to hire an LCV for a fixed period of normally 3 or 4 years. You may have to pay a deposit at the outset, but then you make agreed monthly payments during the contract period.

What happens at the end of the contract is what distinguishes a ‘balloon’ finance lease from a ‘closed-end’ one. Let’s take a look at the difference.

A closed-end LCV lease

If you take out a closed-end lease, you are under no obligation to purchase the vehicle at the end of the contract period — although that option remains open to you. The benefit of walking away from the final purchase payment is that you don’t have to shoulder the cost of a depreciating vehicle that may already have significant miles on the clock.

A ‘balloon’ LCV lease

Balloon leases are more restrictive. When you reach the end of your contract period, you are obliged to buy the vehicle you have been using for the past 3 or 4 years. You hand over a ‘balloon payment’ at the end of the finance lease period and you become the owner of the vehicle.

Hire or Buy? Choosing the right vehicle option for your company >

The benefits of commercial vehicle finance leasing

Both types of leasing arrangement have shared benefits that are primarily financial. In particular, you enjoy:

Fixed monthly costs. You can predict your outgoings over the lease period.

Fixed interest rates. Unlike a bank loan used to buy a vehicle, payments not vulnerable to fluctuating interest rates

No tied-up capital. You don’t sink large amounts of capital in vehicle purchase.

Tax benefits. You can claim rental allowance against tax. These are benefits that are also offered by contract hire or flexible hire. We’ll talk about these options in a moment, but first it’s worth looking at some of the drawbacks of sourcing LCVs via a finance lease agreement.

Hire or Buy? Choosing the right vehicle option for your company >

Finance leasing — potential drawbacks

Before you opt for a closed-end or balloon finance lease arrangement, be sure to take the following into account. They might reveal that you’re not going to get such a good deal as you hoped.

Mileage allowances. LCVs on financial leases can have very low mileage allowances to preserve the value of the vehicle, and you will probably have to pay expensive supplements if you exceed them. The allowed mileage may not even be enough to cover an LCV used on a regular basis by a local trades firm.

Wear and tear. You may be liable for wear and tear on a vehicle, leading to additional expense and even disputes.

Deposits. Deposits on vehicles can be expensive, depending on the lease package you choose.

Higher insurance. Insurers may charge higher premiums for vehicles hired in this way.

Expensive customisation. If you need to customise your vehicles with beacons, towbars or other equipment, this expense will normally be added to the purchase cost — and increase your monthly payments.

No support. When it comes to maintenance, repairs, breakdowns, MoTs, courtesy vehicles and all the other support needed to run a fleet, you’re on your own — unless you take out an additional maintenance package, which may be basic or outsourced.

Remember also that if you take out a balloon lease, you will face a substantial payment at the end of the contract period.  This can damage your cash flow, as well as land you with a rapidly depreciating vehicle.

Because of these drawbacks, businesses needing LCVs are turning to different models of vehicle sourcing. Two popular options are contract hire and flexible hire, some of which also do away with the problems of deposits, expensive maintenance and customisation, wear and tear costs and lack of fleet support.

So if you’re offered a closed-end or balloon finance lease, don’t just look closely at the fine print. Consider whether there are more economical and hassle-free ways to source your LCVs.

The right decision will ultimately be the one that suits your business needs, but before you sign on the dotted line you may want to look at more options. Our free guide 'LCV Acquisition - Hire or Buy' will help you make an informed decision by weighing up the pros and cons of each fleet option — download your free copy below today.

Hire or Buy? Find the best fleet option for your business

Editor's note: This post was originally posted in March 2013 but has been completely revamped and updated for accuracy and comprehensiveness. 

Trigger guide

This is an inline guide purely for the editor, it will not show in the final blog, designed the assist you with setting the options below in the 'Gate Trigger' section.

You will not be able to use the WYSIWYG editor for this it's code only so follow these instructions carefully.


Button
We cannot use a standard call to action to open the rest of the content, but we do want to track when someone clicks on the button to read the rest of the blog. Here's what the code should look like:
<a class="gate-trigger-button" href="#" id="What’s the difference between balloon & closed-end leases? - Read the rest of the post" title="Read the rest of the post">Read the rest of the post</a>


Survey
Instead of using a button, you can ask people a what their intent of being on the blog is. Here's an example.
<h3 style="text-align:center;">Ready to read the post?</h3>
<p style="text-align:center;">Great, just let us know why you're here today</p>
<ul id="survey">
<li><a href="#" id="What’s the difference between balloon & closed-end leases?">Answer One</a></li>
<li><a href="#" id="What’s the difference between balloon & closed-end leases?">Answer Two</a></li>
<li><a href="#" id="What’s the difference between balloon & closed-end leases?">Answer Three</a></li>
<li><a href="#" id="What’s the difference between balloon & closed-end leases?">Answer Four</a></li>
<li><a href="#" id="What’s the difference between balloon & closed-end leases?">Answer Five</a></li>
<li><a href="#" id="What’s the difference between balloon & closed-end leases?">Other</a></li>
</ul>

If you want to connect what the user selects in the survey with the call to action at the bottom, use the following:
<ul id="cta-list">
<li><a href="#">CTA One</a></li>
<li><a href="#">CTA Two</a></li>
<li><a href="#">CTA Three</a></li>
<li><a href="#">CTA Four</a></li>
<li><a href="#">CTA Five</a></li>
<li><a href="#">Default</a></li>
</ul>


Form
We need to add the same form for each blog, you can if you want to make your own form but you'll need to change the formId which will be in the URL for the form e.g. https://app.hubspot.com/forms/234700/648983ff-6a25-4353-9301-08f793edfcb5/edit:
<script charset="utf-8" type="text/javascript" src="//js.hsforms.net/forms/v2.js"></script>
<script>
hbspt.forms.create({
portalId: '234700',
formId: '648983ff-6a25-4353-9301-08f793edfcb5',
css: '',
onFormSubmit: function($form) {
gateTriggerForm('What’s the difference between balloon & closed-end leases?');
}
});
</script>


CTA Form
If people are clicking the CTA but then not filling in the form on the landing page they're being taken to, it may be worth loading the form on the same page to see if that helps the submission rate:
<div class="cta-form-image">
<a class="cta-form-image-button" href="#" id="CTA Click - What’s the difference between balloon & closed-end leases?"><img alt="Title of the CTA" src="https://cdn2.hubspot.net/hubfs/234700/FER_CTAs/download-your-free-guide-lcv-acquisition-hire-or-buy.png" title="Title of the CTA"></a>
</div>
<div class="cta-form-inputs">
<a href="#" class="cta-form-inputs-close"><i class="fa fa-times" aria-hidden="true"></i></a>
<script charset="utf-8" type="text/javascript" src="//js.hsforms.net/forms/v2.js"></script>
<script>
hbspt.forms.create({
portalId: '234700',
formId: '648983ff-6a25-4353-9301-08f793edfcb5',
css: '',
onFormSubmit: function($form) {
gateTriggerCTAForm('What’s the difference between balloon & closed-end leases?');
}
});
</script>
</div>

This is the rest of the blog

When the page loads, or when it is being edited, this content will appear. When the page is loaded on the blog, the content will be hidden by the script until such times the trigger button is clicked or the trigger form is completed.

If you're not using this section then you should delete the text in here.

Topics: Flexible hire

Comments