What is Lease Purchase?
What is Lease Purchase?
Lease Purchase is designed for a business to purchase a vehicle without having to pay for it in one lump sum, very similar to Hire Purchase (HP) although with lease purchase a final balloon payment can be added to the end of the contract, reducing the monthly payments. Contractual terms are flexible like other products but you are committed to purchasing the vehicle.
The information below gives you a good idea of how the rentals are calculated and the benefits to you along with the points to consider about this product.
What affects the Monthly Repayment?
A number of factors come into play when calculating the monthly repayment for you and these need to be considered when thinking about which vehicle to purchase. Our team here are happy to discuss these with you in detail, we believe it important that you make an informed decision that is right for you, not us.
Vehicle Purchase Price - This a big factor, the more expensive the vehicle, generally, the more you can expect your payment to be, although strong residual values can sometimes buck this trend, resulting in a higher final balloon payment and subsequently, lower payments. We source and negotiate the price of the vehicles ensuring we achieve the most competitive prices, and don’t worry, we only buy from the manufactures franchised dealers.
Mileage & Contract Length – The more miles you do, the more the value of the vehicle drops resulting in a lower final balloon payment. Contract Length can have a varying impact, normally the longer you have the vehicle the lower the payment, but this is not always the case.
Final Balloon Payment – You can choose to have a final balloon payment at the end of the contract term to reduce the monthly repayments, this will be set by the funder based on a number of factors such as annual mileage and contract length. They will set it at a level that they believe to be in line with the future residual value and sale price of the vehicle. The funder will monitor previous sales of vehicles and closely and constantly monitor industry data, which gives them a good idea of where to set it in the first place
Mileage & Contract Length – It is important to set an accurate mileage at the start of the contract, because the disposal of the vehicle is your responsibility. If you do more miles than originally stated within the contract terms, you will not be charged any excess mileage charges BUT, if you are looking to clear the final payment with the proceeds of the sale, you may be left with a shortfall. On the flip side, should you do less miles then you anticipated, you may end up with some extra equity.
Maintained Contracts – With some funders, like contract hire, you can include the maintenance package, this includes; servicing, mechanical repairs, tyre replacement and comprehensive breakdown cover. Ideal if you do not want any surprise bills and a fixed monthly cost.
The Key Benefits of Lease Purchase
- Ownership – Once all payments are made you will own the vehicle.
- Company asset – Ideal for companies that want to retain the vehicle as an asset.
- No mileage or damage penalties from the funder, although any damage will affect the re sale value.
- Option to re-finance the final payment should you decide to keep the vehicle longer than the initial contract term.
- Ability to settle the agreement early without additional early termination penalties, although settling early may result in a shortfall between the settlement figure and the value of the vehicle which will remain your responsibility.
Points to Consider
- You are committed to the purchase of the vehicle.
- You are responsible for insuring the vehicle on a fully comprehensive policy.
- Doing more miles than stated at the point the contract was taken out can lead to a short fall when trying to clear the final payment from the proceeds of selling the vehicle. This also applies should the vehicle not be in a reasonable condition at the point of sale.