What is Lease Purchase?
Lease Purchase is a method of purchasing a vehicle over a period of 12 to 60 months. The initial payment is usually low and is followed by regular fixed payments until the end of the agreement where you make a Final Payment (Balloon). The Balloon is worked out at the start of the agreement so you can budget for the amount. You must purchase the vehicle at the end of the agreement and there is no option to hand the vehicle back, meaning you take on any risk of depreciation.
Key points of Lease Purchase
- Contract lengths range from 12 to 60 months
- Allows for accurate budgeting over the term of the Lease
- All of the VAT may be recoverable in the first year for vans, different for cars depending on use. Please ask your accountant to see if this applies to you
- Vehicle is delivered to you and collected from you when you hand it back
- Appears on Balance Sheet
Things to consider with Lease Purchase
- You must purchase the vehicle at the end of the agreement; there is no option to hand back. However it may be possible to refinance the Final Payment (Balloon) and pay it off over a given period
- Road Fund Licence only included for the first year
- The Balloon can be high and must be paid