What is Lease Purchase?
Lease Purchase is a bit like PCP (Personal Contract Purchase) as it has a balloon payment at the end, however there is an important difference. PCP has a guaranteed future value which means the vehicle can be handed back to the lender at the end of the agreement. With a Lease Purchase agreement the balloon payment is not guaranteed and you cannot hand the car back. The balloon payment must be paid back to the lender as part of the repayment structure. As with PCP, by deferring some of the vehicles value it makes the monthly payments up to that point lower than if your repayments covered the whole vehicle value as Hire Purchase for example would.
You can put a deposit down if you wish and make fixed monthly repayments until the end of the term. A deposit can be made up of either cash, a part exchange or a combination of both. Terms are typically 2, 3 or 4 years on a Lease Purchase. Sometimes a lender will go up to 5 years though.
When the term ends on a Lease Purchase you have a choice:
1. You can make a lump sum payment for the balloon in order to purchase the vehicle outright.
2. You can part exchange the vehicle and use any equity you have (if its current value is more that the balloon payment) to put down as a deposit on a new vehicle via another finance agreement.
3. Proactive Vehicle & Equipment Finance (or another company of your choice) may also be able to help you refinance the balloon if you wish to keep the same vehicle.
What are the benefits of Lease Purchase?
Typically, monthly payments with Lease Purchase are lower than with Hire Purchase due to the balloon payment.
It can be simple with Lease Purchase to part exchange the vehicle, pay off the balloon and start another agreement.
You may be able to finance an older vehicle or one with slightly higher mileage on a Lease Purchase, as some lenders have strict restrictions on age and current mileage of a vehicle on PCP to be able to guarantee its future value.
What else do I need to consider?
One of the main downsides with Lease Purchase is that there is no guarantee you will become the outright owner of the vehicle at the end of the term, as you still have the balloon payment to make. If you can’t afford to make the balloon payment in one go for example, you will have to part exchange it or refinance the balloon.
There is also a risk that the balloon is set too high and the vehicle is not worth what you owe. It's important to estimate your annual mileage correctly at the beginning of the agreement so that the balloon figure is correct for the vehicles worth at the end. You will still need to make the balloon payment even if the vehicle's value is lower. There is no option to just hand the vehicle back as there is on a PCP.
Finally, like other agreements, failure to keep up with your repayments means that the vehicle could be repossessed by the lender which may then affect your credit score and ability to obtain finance in the future.
Rates from just 9.9% APR.
(The exact rate you will be offered will be based on your
individual circumstances)
Representative APR 17.2%.
Representative example:
Borrowing £11,000 over 4 years with a representative APR of 17.2%, an annual interest rate of 17.2% (Fixed) and a deposit of £0.00, the amount payable would be £311.61 per month, with a total cost of credit of £3957.28 and a total amount payable of £14957.28.
Rates may differ as they are dependent on individual circumstances, the lender you are approved with and the vehicle/equipment purchased.
(Click here to find out what a Representative APR & example is)
Finance is subject to status.
Warning: Late payment may impact your credit file and the lender may reclaim the vehicle or equipment financed prior to the end of the term of the agreement.