Overview

Generally, a lease purchase deal is very similar to a PCP agreement. After making an initial deposit upfront, instalments are calculated on the difference between the vehicles retail cost and the expected residual value come the end of the contract. So if the vehicle is able to hold its value you are in line for a better deal. This makes luxury cars more affordable and a popular choice amongst lease purchase agreements.

The main difference between lease purchasing and PCP is that with a lease purchase agreement, you have to buy the car at the end of your contract. With PCP you are given the option to purchase or return the vehicle back to the leasing company; with lease purchase you do not have that choice. So the vehicle is yours once you complete your term and you will be required to make a final balloon payment. However, this can be paid with additional finance or can involve some form of part-exchange deal.

Typically, lease purchase contracts can last anywhere between two and four years, but with most contracts you are given the option to settle all payments at any point.

The Pros & Cons of Lease Purchase

Pros

  • Suited to a higher class of vehicle, that may be previously unaffordable, as you must keep the residual value.
  • Acts as a great company asset.
  • Allows business owners to take a vehicle without parting with too much cash – deposits are usually very low.
  • Typically lower monthly instalments compared with hire purchase agreements.
  • Vehicles can appear as balance sheet items, allowing you to write off the value against taxable profits.
  • The vehicle is yours at the end of the contract.
  • Possibility of a maintenance package if negotiated.

Cons

  • Final balloon payment is not optional and in some cases can be higher than the residual cost.
  • VAT only reclaimable is the vehicle is used purely for business use.
  • Depreciation, possible resale, disposal and maintenance are all concerns for the driver as they own the car at the end of the contract.

Is Lease Purchase right for me?

This type of agreement is perhaps best suited to businesses rather than private customers, but it still requires expert handling and management. If you are looking for a long finance agreement then this option will make your choice of vehicle lest costly. It is extremely important to do your research and scout the market for the best deals.