Lease Purchase is similar to Hire Purchase, but offers you a number of advantages. Like hire purchase you pay a low deposit then make the remaining payments at a fixed rate over an agreed period, usually two or three years.
However, with Lease Purchase you reduce your monthly payments significantly by choosing a final balloon payment. This balloon payment is based on the car’s estimated resale value at the end of the agreement and is taken into account when the payments are calculated, making them lower than a traditional Hire Purchase agreement.
When you pay the final balloon payment you complete the agreement and own the vehicle, which is yours to do with as you wish.
Lease Purchase monthly payments do not attract VAT, making this scheme particularly attractive to non-VAT registered businesses. All of the interest on your payments is allowable against tax. Additionally, a proportion of the car’s value can be written down against profits.
Advantages of lease purchase:
1. Lower monthly payments
2. Small initial deposit
3. Improves cash flow. Retains all the benefits of Hire Purchase
4. Final payment made from sales proceeds
5. No VAT on the payments