Lease purchase is an affordable method of financing a vehicle. Lease purchase (LP) is essentially the same as hire purchase (HP); the main difference is in the terms and structure of the repayments.
Finance companies differentiate lease purchase from hire purchase by using it where the customer wishes to defer payment of a percentage of the vehicle cost until the end of the agreement.
This deferred payment is commonly known as the residual value (RV) or balloon. It is calculated and set at the beginning of the agreement and has to be paid in full for outright ownership.
At the end of the agreement, there are three options:
- Pay off the balloon in cash.
- Settlement by part-exchange.
- Refinance the balloon.
What are the benefits of lease purchase?
- Lower monthly repayments – monthly payments are reduced because a percentage of the vehicle cost has been deferred to the end of the agreement.
- Unlimited mileage – unlike other vehicle finance arrangements there are no mileage restrictions.
- Better cash flow – the vehicle can be used immediately whilst your repayments are spread, giving your business a better cash flow.
- Easily arranged – lease purchase agreements are easily negotiated and available.
- Tax and cost efficient – monthly repayments don’t attract VAT and your business can claim tax relief on the interest charges. As the vehicle is classed as an asset, the depreciation can be written off against taxable profits.
- Easy to budget – your financial commitment and monthly repayments are clearly defined from the outset.
- Security – lease purchase is secured on the vehicle so no additional security is normally required from you or your business.
- Low risk – lease purchase is not repayable on demand unless your business defaults on the agreement.
To find out how we can help with your lease purchase requirements please call us today.Contact us for a quote