Lease Purchase offers customers all the benefits of owning assets without the downside. You pay a fixed monthly rental and at the end of the agreement when the asset is disposed, you typically keep 95% to 98% of the proceeds.
Broadly speaking Lease Purchase is the same as PCP in that the leasing company has a retail value of the car and works out an estimated future value of the vehicle for the end of the contractual period based on its depreciation. This is known as the residual value. You can place a lump sum down-payment on the car upfront and then you make monthly payments on the difference between the retail value and the residual value. As a consequence, the more the vehicle ‘holds its value’, the better the deal – meaning luxury cars are often popular for lease purchase deals.
However, there is a fundamental difference between lease purchase and PCP. Whereas PCP gives you the option to buy the car outright at the end of the contractual period, with lease purchase you already have an agreement to buy the car. There is no return option.
- Reduced Deposit - A typical deposit is only three months rental payments in advance
- Lower Monthly Repayments - The leasing company owns the vehicle, customer payments are lower as they are calculate on the VAT exclusive price.
- Flexible payments - The payment can be tailored to suit the customer's monthly budget
- Effective budgeting - Interest rate is fixed at the start of the agreement, monthly rental remains the same.
- Disposal - At the end of the agreement a customer can continue to pay a nominal annual payment if they wish to keep the vehicle longer. This is particularly useful is their next vehicle has not arrived, as they won't be without a vehicle.