Lease Purchase is for people who would like to own a vehicle but do not necessarily have the money to buy one immediately. It is another type of car finance which is ideal for non-VAT registered customers who eventually wish to take ownership.
Lease Purchase arrangements are treated for tax purposes as a purchase by the customer, when the vehicle is brought into use.
It is a flexible product and it is possible to put down a larger initial payment, which has the advantage of reducing the monthly payments. The monthly cost is worked out on the difference between the retail value and the depreciation value. This means that choosing Lease Purchase for a vehicle which holds its value will work out in your favour. The reason for this is that the less the car loses the better the deal which is why companies do this for luxury cars often!
The major difference between Lease Purchase and contract purchase is that instead of having the choice at the end of the contract to purchase the vehicle, which you would have with contract purchase, you have already entered into a contract to purchase the vehicle at the end of the contract. This contract is only for those who are absolutely sure that they want to take ownership of the car at the end of the contractual period, and pay any balloon payments attached to the contract.
Lease Purchase agreements last between 2 and 4 years although the agreement can be settled at any time throughout the contract.
Lease Purchase is great for organised companies who are good at managing fleets and finding the best possible deals. If you do enough research on the vehicles which you would like to lease you will get a great deal. However failing to do the correct research may result in your balloon payment being much more than the residual value so just remember that this isn’t for everyone.