What is Lease Purchase?
A lease purchase is a financial agreement that allows you to purchase a vehicle over a period of time. It is normally separated into three parts. Firstly, a deposit is followed by monthly payments and finishes with a guaranteed minimum future value (also known as a balloon payment). Lease purchase agreements typically range from two to four years.
You will own the car at the end of the agreement once you have paid the final balloon payment. After that, you can choose what to do with the vehicle.
Lease purchase is a popular option for people who know what vehicle they eventually wish to purchase but haven’t the necessary funds to pay for the vehicle upfront.
Please explore the Personal Contract Hire option, though, as, in our experience, it’s a more popular option. If you have any questions about the best finance option for you, please call our specialist team on 02392 245570.
How does a lease purchase work?
Think of a lease-purchase agreement as being split into 3 steps:-
You pay a deposit. The higher the deposit payment the lower the monthly payments will be. Deposits are typically either three months worth of payment or six months’ worth of payments or nine months worth of payments.
Your monthly payments have to be paid every month for the duration of the agreement. The amount of these payments is decided by taking into account your anticipated annual mileage allowance, the age of the vehicle and the length of the agreement. The longer the agreement, the cheaper the monthly payments will likely be, but this could result in you paying more interest, so please consider this.
At the end of the lease agreement, you get to own the car once you’ve paid the Guaranteed Minimum Future Value (GMFV) of the vehicle. The GMFV is agreed at the beginning of the agreement and you must pay it at the end. You can either pay it through a single one-off payment or by taking out an alternative finance agreement.
Once you have paid the balloon payment, you have full control over what happens next as the legal owner of the vehicle. Until this payment has been made you don’t legally own the car.
There is always the option to part-exchange and upgrade your vehicle if you want a new car or van.
What are the key features of a lease purchase?
• The vehicle is paid for initially with a deposit, followed by monthly payments and a final balloon payment at the end of the agreement
• The vehicle must be purchased at the end of the agreement – there is no option to return it
• No maintenance packages or other services are included in the agreement
What are the key benefits of a lease purchase agreement?
• You own the vehicle at the end of the agreement, after paying the final balloon payment
• Easier budgeting with a low deposit and monthly payments
• Monthly payments are not subject to VAT