Suitability Explanation - A Customer-Friendly Guide to your Lease Purchase
What is Lease Purchase (LP)?
Funding a vehicle through Lease Purchase (LP) is similar to Hire Purchase in that the cost of the vehicle is spread over a term of usually 2-5 years at a fixed rate of interest but with the addition of a larger final payment usually based on the expected value of the vehicle at the end of the agreement. By having a larger final payment the normal monthly payments are less than a traditional Hire Purchase. It’s a traditional method of finance for those for whom ownership is preferred and who usually change their vehicle at the end of the agreement term.
Is LP Right for You?
Yes, if you definitely want to own the car or van but haven’t got the immediate funds to do so, but it won’t be a good fit if
You don’t want the risk of the residual value as if the vehicle is worth less than the final instalment, you’ll need to put your hand in your pocket for the difference
You want to use it abroad extensively as there are restrictions
Your business involves specific uses, like taxis and driving schools
Finding an initial payment, usually between 10% and 50% of the cost, is difficult
You’re looking to finance a van and haven’t got access to funds to cover the total vat on the purchase price as this needs to be paid up front
Benefits of LP:
There’s some good plus points to LP
Fixed monthly payments which are lower than traditional HP due to a larger final instalment based on the expected value of the vehicle
You will obtain ownership by making all of the payments or by early settlement
You choose the term of the agreement (2-5 years)
Optional service, maintenance and repair plans for easy budgeting and you can reclaim 100% of the vat
Road tax at the current rate is included for the initial 12 months
The vehicle will be on balance sheet enabling you to claim capital allowances at determined by HMRC with the depreciation offset against taxable profits
No mileage restrictions
Responsibilities and Care:
Comprehensive insurance is a must
Prompt payment of fines and charges as if the vehicle is registered to you care of the funder and the bill lands with them, they’ll make an additional charge for their administration
Service and maintain the vehicle according to the Manufacturer’s recommendations and keep it roadworthy. Use of genuine Manufacturer parts is a must and some funders require you to service and maintain at a main franchised dealer. Please check the terms and conditions of your finance agreement. It’s worth exploring a cost effective service, maintenance and repair package for predictable costs but do bear in mind that the maintenance provider may decline to settle any charges if the total contract mileage is exceeded
Non-payment may lead to contract termination and vehicle repossession
Important Reminder:
Only commit to a LP if you’re comfortable with the financial terms
Make sure that you fully understand the agreement before entering into it
In a nutshell, LP is an option if you want to own a vehicle but don’t have the funds available to buy it outright, but it comes with responsibilities.
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.
