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Lease Purchase Infomation
What Is Lease Purchase?
Lease Purchase is a method of financing a vehicle, normally for either VAT or NON VAT registered businesses or companies. The monthly rental is determined by the cost of the vehicle, the period and the estimated future value of the vehicle which is based on the proposed annual mileage.
How Does Lease Purchase Work?
A payment equivalent to the estimated future value is payable at the end of the contract, when the vehicle becomes the property of the lessee. Maintenance packages are often available, if required. Lease Purchase is a cheaper monthly alternative to Hire Purchase, the traditional method of financing, and is written on a hire purchase agreement with the protections afforded by the consumer credit act.
Lease Purchase - Advantages & Disadvantages
What are the main advantages of using Lease Purchase?
- Lease Purchase requires only a small initial deposit and low monthly payments.
- Companies that choose this type of vehicle leasing contract are able to put the money that is held back into their company at an early stage.
What are the disadvantages of Lease Purchase?
- A balloon payment will need to be paid at the end of the agreed lease period. In some cases this may exceed the residual value of the car or van and companies need to be certain that they have finances available to make these balloon payments when they are due.
- VAT is only reclaimable if the vehicles are used only for business use.
- Due to loss of residual value and maintenance costs, the task of managing a fleet of lease-purchase vehicles requires expert handling.
