What is Lease Purchase?
You can lease a vehicle with a lease purchase contract, where you pay an initial payment or deposit at the beginning of the arrangement and then pay monthly instalments until the full value of the vehicle is paid. It is essentially the same as hire purchase, except you have the option of a balloon payment at the end of the period – this lowers the monthly cost but requires you to pay a lump sum at the end of the contract.
Payment
The initial payment or deposit can be any amount although a minimum of all the VAT on the purchase price must be paid – although the larger the deposit, the lower the amount you borrow. The repayment period is from 12 months up to 60 months.
Things To Know
Monthly repayments are VAT free as the VAT has already been paid. 100% of VAT deposit is reclaimable for VAT registered customers. 100% of interest charges can be offset against taxable profits. The vehicle is an asset on your balance sheet and benefits from writing down allowances. At the end of the contract period the vehicle is 100% owned by you once all payments have been made.
Pros
- Simple method of vehicle finance
- Vehicle owned on completion of payments
- Capital allowances available
- If VAT registered, VAT reclaimable in 1st quarter
- Lower payments due to deferred final payment
Cons
- On balance sheet finance
- You retain the residual value risk
- Large deposit
- Inflexible end-of-term options
- Reserved for commercial transactions
