Lease Purchase - Suitability explanation
Lease Purchase (LP) is very similar to Hire Purchase, but with the addition of a final larger payment. This means that a proportion of a business car’s initial cost is deferred until the last month of the contract, therefore lowering the monthly amount that has to be paid after you place the initial down-payment. The monthly payments are dependent on the difference between the price paid and the final payment based on the anticipated residual value of the vehicle plus interest. This means that the deal gets better the more the car holds its value, making luxury cars more popular for long term deals. Lease Purchase suits businesses that want to retain their company car as an asset.
LP may not be suitable for you in certain circumstances. For example:
- There is no option to return the vehicle, however, by entering into a Lease Purchase deal, you have already agreed to buy the car.
Benefits of LP
- Vehicle is registered in the company name
- On balance sheet
- Fixed monthly payments not subject to VAT
- No mileage restriction
- Portion of initial cost deferred until last month of the contract
Taking care of the vehicle
- You must ensure the vehicle is comprehensively insured at all times
- You must pay any additional charges that you incur eg parking fine, congestion charge on time. If you don’t do this, the charge will be referred to the finance company who take payment from you for this and for an administration charge that they will make
- It is a condition of the manufacturer’s warranty that the vehicle is serviced and maintained in accordance with the manufacturer’s requirements. They recommended that you use the services of a main franchised dealer
Failure to make payments in full and on time may result in the contract being terminated and the vehicle repossessed. Only enter in to an agreement if you are comfortable with the financial commitment and terms