Lease Purchase
Lease Purchase is identical to Hire Purchase with the exception that instead of paying back the whole amount borrowed over a fixed period, you would defer some of the capital in the form of a balloon payment due at the end of the agreement.
The logic behind this is that as the vehicle will be worth something at the end of the agreement there is no need to pay all the capital as you can sell the car or van to cover the balloon payment.
A Lease Purchase agreement is determined by the cost of the vehicle, the contract length and the estimated future value of the vehicle which is based on the proposed annual mileage. In paying the “balloon figure” at the end of the contract you complete the agreement and the car is yours to keep. If you trade the car in for another, then any allowance over and above the balloon payment is yours and can be put towards your deposit on your next car. Likewise, if the allowance is less than the balloon, then you are responsible for the shortfall.
The key benefits of Lease Purchase are:
- Eventual ownership of the vehicle
- Flexible initial deposit
- The car can be written down in your books-for businesses
- All interest paid can be off-set against tax-for businesses
- No VAT on payments
- Option to take early setttlement
- No restriction on mileage
