This is a method of vehicle financing that is often favoured by VAT registered businesses and companies.
The business in question uses the vehicle while paying a rental instead of a repayment. The monthly rental cost is determined by the initial cost of the vehicle (excluding VAT), the period of the finance lease and the residual value (the estimated future value of the vehicle at the end of the finance lease period. This is once depreciation is taken into account), plus interest. While ownership is never taken, at the end of the finance lease contract a payment that is equivalent to the residual value is payable. This usually means the vehicle is sold and a proportion of the proceeds of the sale are returned to the lessee.
The majority of finance lease companies offer a number of payment options to suit your cash flow. You can reduce the monthly rental with a balloon payment at the end of the contract or alternatively, you can pay the entire cost in monthly rentals. In this case you may be able to extend the finance lease with a secondary rental.