If you are coming to the end of your lease contract, you may want to know what your options are regarding extending your lease contract.
What is a Contract Extension?
A contract extension is an agreement between you and the finance company to extend the term of the lease contract beyond its original end date. With vehicle lease agreements, there are two forms of contract extension. These are ‘Informal Extension’ and ‘Formal Extension’.
What is a Formal Extension?
A Formal Extension is a formal agreement between the finance company and you (the customer) which allows the customer to extend the lease contract for an additional term (usually up to 12 months). A modifying agreement is sent to the customer explaining the extended term, term date and mileage agreement along with the new monthly rental charge. If you agree to this, the extended contract runs from the end of the existing contract. There may be additional charges cancelling the extension early. This type of agreement gives peace of mind motoring, knowing the set end date of the contract.
What is an Informal Extension?
An Informal Extension is an informal agreement where the customer continues to use the vehicle beyond the end date of the contract end date until the collection is requested. When you go into an informal extension, the monthly rental may change dependent on the finance company. An informal extension is a short-term solution that is designed to help stop the gap between two different lease agreements. If a contract exceeds by six months, the financial provider has the right to recall the vehicle. Not every finance provider offers this extension.
What are the advantages of extending your lease?
•Often finance companies offer extension deals which can reduce your current monthly payment.
•A new credit check isn’t required when arranging a lease extension.
•A new initial rental isn’t required before going into extension meaning no extra upfront costs.
•Going into an extension gives you peace of mind and time to consider new vehicle options, removing the uncertainty of being left without a vehicle.
•An extension gives you time to budget for your next vehicle.
What are the disadvantages of extending your lease?
•Providers may charge administration fees, which are payable at the start of the contract.
•Extending your current contract, you may need to service and maintain your vehicle in line with the manufacturers guidelines.
•An MOT will need to be carried out if it’s over three years old.
•Your vehicle manufacturers warranty may have expired, meaning you are without cover if anything was to go wrong.
•Early termination fees may apply if you look to return you vehicle early before the agreed arrangement date.
•You may need to replace wear and tear items such as tyres, bulbs and windscreen wipers if they don’t meet regulations.
What are the criteria for a Contract Extension?
•For formal extension, a modifying agreement must be signed
•If there are less than 3 payments outstanding, a new lease agreement will run from the end of your current contract
•A new rental will be calculated for future payments
Can anyone go into a Contract Extension?
This is not always an option as some funders do not allow it. A contract extension is at the discretion of the finance company and is only usually allowed on Personal Contract Hire and Contract Hire agreements.
A Contract Extension will also not be provided if:
•A request has been submitted to add or remove maintenance
•If the existing account has arrears or is subject to Default or Insolvency
•The Modifying Agreement has not been completed in full
If you are coming to the end of your contract and think you want to go into an extension , feel free to give us a call on 01942 311508 and we will be more than happy to help you through the process