Lease PurchaseFixed cost finance that can work well for higher value vehicles
Financing a car or van using Lease Purchase includes paying a deposit, followed by set monthly amounts, and a final payment to cover the vehicle’s residual value. Typically, there are less restrictions over how the vehicle is used than when financing a car or van through more popular forms of leasing such as Contract Hire. It’s also a good choice for companies who want to offset the value of the vehicle against taxable profits.
- Good for luxury vehicles which hold their value and thus offer lower monthly payments
- Less restrictions applied over the use of the vehicle than traditional Contract Hire
- On balance sheet accounting means the vehicle value can be offset against company profits
- Improved cash flow by deferring a bulk payment until the end of the contract term
How it works:
Lease Purchase is very similar to Contract Purchase, with set monthly payment based on the anticipated re-sale value of the vehicle. Although the length of agreement and number of miles driven both have a direct impact on this residual value, the type of car also makes a difference, with high-end vehicles holding their value better than entry level models.
At the end of the contract you are committed to buying the vehicle for an agreed sum, so a higher deposit will mean lower monthly payments and less to pay at the end of the contract. Interest rates are typically cheaper than Hire Purchase, however you do need to be sure that you have enough funds on hand to pay the balloon payment when it becomes due.