LEASE PURCHASE
If you want to buy a vehicle outright, but don’t have the money to do so immediately then lease purchase could provide an affordable solution. Lease purchase is a method of financing a vehicle that is normally used by VAT registered companies or businesses, which works in a similar fashion to personal contract purchase (PCP) but with some fundamental differences.
WHAT IS LEASE PURCHASE
The leasing company has a retail value of the car and works out an estimated future value of the vehicle for the end of the contractual period based on its depreciation. This is known as the residual value. You can place a lump sum down-payment on the car upfront and then you make monthly payments on the difference between the retail value and the residual value. As a consequence, the more the vehicle ‘holds its value’, the better the deal – meaning luxury cars are often popular for lease purchase.
With lease purchase there is an agreement to buy the car. There is no return option, therefore at the end of the lease period, the customer must make a final balloon payment. This may be done through a cash payment or alternatively with additional finance or a part-exchange.
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BENEFITS OF LEASE PURCHASE
ᐅ Lease purchase is best suited to the finance of high-class vehicles due to the fact that you must take on the residual value. Higher residual values will also result in lower monthly payments.
ᐅ Company asset – Lease purchase is ideal for companies that want to retain the vehicle as an asset.
ᐅ Frees up finance – With lease purchase you take control of a vehicle while still holding money back to put into your company. Initial deposits are only usually the equivalent of three months’ payment.
ᐅ Low monthly payments – Payments are typically cheaper than hire purchase and the same Consumer Credit Act protections apply.
ᐅ Balance sheet – The vehicle can appear as a balance sheet item and you can write down the value against taxable profits.
ᐅ Ownership – Once the balloon payment is made, the vehicle is yours.
ᐅ Maintenance packages – You may be able to negotiate a maintenance package for the duration of the lease purchase agreement.
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