What is Lease Purchase?
Lease Purchase is a finance solution that allows businesses to drive MORE vehicle for their money.
Like other finance agreements, you can choose the number of fixed monthly repayments (From 2 to 4 Years) and decide upon a deposit amount (VAT as a Minimum Deposit on Commercial Vehicles). You have the choice to put down a larger initial payment to suit your circumstances.
Unlike other finance agreements, a Lease Purchase takes an agreed proportion of the value of the vehicle and defers it to the end of the agreement. This is called a ‘Balloon Payment’. This is the key to lease Purchases flexibility.
How does Lease Purchase work?
You pay your deposit, make your monthly repayments and at the end of the agreement you have two options.
• You can pay the balloon and take full ownership of the vehicle.
• Alternatively, you can sell or part exchange the vehicle, using the equity difference between the vehicles market value and balloon payment as a deposit towards your next vehicle. (Please be mindful that there are many factors that can affect the vehicles market value – Such as condition and mileage and service history – The liability of a shortfall between the market/sale value and the ‘Balloon Payment’ this would be your responsibility.)
Lease Purchase for Business Customers
For Business customers, Lease Purchase is classed as a purchase agreement. This means that the vehicle will show as an asset and can have its value written down along with other plant and machinery and interest costs may be allowed as a business expense.
Lease Purchase is quick, flexible and easy to arrange.
Benefits of Lease Purchase:
• Minimum Deposit of the VAT on the purchase cost of the vehicle – Additional deposits can be paid to reduce the monthly payments further
• Fixed Monthly Payments – Great for forecasting cash flow for your business
• Agreement Periods from 24 months (2 Years) up to 48 months (4 Years)
• No need for you or your business to be VAT Registered, however, if your business is VAT Registered you can claim up to 100% of the VAT
• A manageable monthly payment with the option to take ownership of the vehicle at the end of the term (By making the final payment)
Concerns of Lease Purchase:
• Running Costs: The running costs for the vehicle are your responsibility, Please take this into consideration when looking at Lease Purchase: Maintenance, Servicing and ‘Wear & Tear’ of the vehicle is your responsibility for the duration of the agreement.
To ensure you get the very best advice, you should seek professional guidance from your accountant or a Business Finance Specialist.