Can I pay a lease agreement off early?
Over the years I have often been asked, “can I pay this lease agreement off early?” or “is early settlement an option?”
The short answer is “yes” you can. But why would you?
When you sign a finance agreement, you are entering into an agreement to a lender that you;
- a) Agree to the terms of the agreement.
- b) You understand the terms of the agreement.
- c) You will continue to keep making the repayments.
There tends to be a myth that by settling your finance agreement early will save you money. However, this is not necessarily the case. Some lenders will not offer an early settlement rebate, meaning you will need to pay all outstanding rentals. However, others just will ask you to pay all outstanding rentals, offering a 3% discount.
As a simple example, say you have twelve payments left of £1,000 per month, the settlement figure would be £11,640 (not a massive saving, especially if the money could be better off used in another area of the business.)
How often do clients pay off lease agreements early?
Hardly ever do we see our clients repaying a lease early. Then, if you look at the key reasons why they would, normally it is only when they are selling the business.
Sure, over payments can be made to end the agreement early but again, ask yourself, why would you want to? That cash is therefore far better being kept in your business.
Actually, the opposite happens!
Interestingly, clients normally have multiple lease agreements running, taken out over time where they have updated equipment or improved the environment with refurbishments etc. The finance agreement is taken out over the lifetime of the equipment, and at the end of the agreement, the equipment is either refreshed or retained often for a small, transfer of title fee.
We do get asked for free independent advice on “can we, should we and how do we settle a lease agreement” from the clients we work with. Please contact us on firstname.lastname@example.org or call us on 01494 611 456.