Lease-Purchase (LP) Explained
Please read this carefully as it provides a summary of the key points of an LP agreement. It does not show all the benefits or exclusions – please speak to an experienced member of our team if you have any queries about whether this product is suitable for you.
Lease-Purchase (LP) - Suitability explanation
Lease purchase is very similar to Hire Purchase but with the addition of a balloon/final payment. Lease purchase is a facility where you own the vehicle at the end of your agreement. You pay an initial deposit, which is the minimum VAT price of the vehicle and offset a proportion of the initial cost until the last month of the agreement. The final payment is based on your expected mileage and the length of the agreement. The stronger the vehicles residual value the lower your monthly payment. The monthly payments are dependent on the initial cost and the residual value plus interest. Repayments are fixed over an agreed period (up to 60 months).
Benefits of Lease Purchase (LP)
- Flexibility in your repayments makes for easy budgeting
- VAT deposit is reclaimable for VAT registered businesses
- Fixed mileage contract
- No VAT on fixed monthly payments
- 100% of interest charges can be offset against taxable profits
- The vehicle is an asset on your balance sheet and you can record the value against taxable profits
- You don’t own the car until you’ve made your final payment, which means if you get into financial difficulties the finance company could take it away.
- Your deposit and term length will affect your monthly payments. Your monthly payments are likely to be higher the smaller the deposit is and the shorter the term of the loan.
- The balloon payment must be paid for at the end of the contract
- Dedicated funding product, which does not include maintenance or any other value-added services
- Effective budgeting with balloon facility, ownership of the vehicle is acquired once the balloon has been paid in full at the end of the contract
Disadvantages of Lease Purchase (LP)
Lease-Purchase is a flexible product and it is possible to put down a larger initial payment, which has the advantage of reducing the monthly payments. This contract is only for those who are absolutely sure that they want to take ownership of the vehicle at the end of the contractual period and pay any balloon payments attached to the contract.
Taking care of the vehicle
- You must ensure the vehicle is comprehensively insured at all times
- It is a condition of the Manufacturer’s warranty that the vehicle is serviced and maintained in accordance with the manufacturer’s requirements. They recommended that you use the services of a main franchised dealer