Lease Purchase Finance is a versatile form of car finance that combines elements of leasing and ownership. It allows you to drive the vehicle of your choice with lower monthly payments during the agreement term, and at the end, you have the option to purchase the car by making a final balloon payment. This option offers flexibility for those who are unsure whether they want to commit to ownership at the start but like having the possibility to buy the car outright at the end.
When you enter into a Lease Purchase agreement, your payments will be structured differently from more traditional finance options like Hire Purchase. Here’s what you can expect:
Initial Deposit: As with most car finance options, you’ll start by paying an upfront deposit. This reduces the amount you need to finance, and in turn, lowers your monthly payments.
Monthly Payments: Your monthly payments cover the cost of the car minus the deposit and the balloon payment. These payments are generally lower compared to Hire Purchase because the balloon payment (a large final payment) defers a portion of the vehicle's cost to the end of the agreement.
Balloon Payment: At the end of the Lease Purchase term, you’ll need to make a balloon payment if you want to take ownership of the car. This payment is agreed upon at the start of the contract and reflects the car’s anticipated value at the end of the term.
One of the key benefits of Lease Purchase Finance is its flexibility. You can tailor the agreement to fit your financial situation and preferences:
Unlike some other finance options like Personal Contract Purchase (PCP), Lease Purchase does not impose mileage limits. This is particularly beneficial if you anticipate driving your car extensively, as you won’t incur extra charges for exceeding mileage limits. Additionally, there are no penalties for wear and tear, as you would expect with a lease agreement, because the intention is that you will purchase the vehicle at the end of the term.
Yes, you can end a Lease Purchase agreement early if your circumstances change, or if you simply want to upgrade your vehicle before the term ends. The process involves:
This flexibility makes Lease Purchase an attractive option for those who may want to switch vehicles frequently while still having the option to own the car at the end of the agreement.
While both Lease Purchase and Hire Purchase involve making monthly payments towards owning a vehicle, the main difference lies in the payment structure. Lease Purchase has a lower monthly payment structure because of the deferred balloon payment at the end, whereas Hire Purchase spreads the entire cost of the vehicle (plus interest) evenly across the term with no large final payment.
The primary charge in a Lease Purchase agreement, aside from the deposit and monthly payments, is the balloon payment at the end of the term if you choose to buy the car. There are no hidden charges for mileage or wear and tear, unlike with leasing options like PCP.
Yes, you can end a Lease Purchase agreement early by paying off the remaining balance, including the balloon payment. You can either sell or trade in your vehicle, and any amount the vehicle is worth over the settlement figure can be used as a deposit on your next vehicle or given to you as cashback.
The above rates and monthly payments are an example only. The actual rate you will be offered by lenders could be lower or higher depending on your circumstances
Representative example: borrowing £6,500 over 5 years with a representative APR of 19.9%, an annual interest rate of 19.9% (Fixed) and a deposit of £0.00, the amount payable would be £166.07 per month, with a total cost of credit of £3,464.37 and a total amount payable of £9,964.37.
*After completing the application, lenders will perform a "soft search" that will not affect your credit score. Should you get an offer of finance and wish to proceed, the lender will then perform a "hard search" of your credit file. Finance acceptance is not guaranteed, please click the following link for more information: Initial Disclosure Document
