A lease purchase is a car financing option, similar in many ways to contract purchase, though the final payment at the end of the contract is the responsibility of the person who has hired the car.

Ownership of the vehicle will be passed onto the customer at the end of their contract, normally 2-4 years, so long as all conditions of the term have been fulfilled.

The monthly payments are worked out using factors such as cost of car, the deposit, term of contract and proposed final payment amount.

Like with contract purchasing, this method of payment tends to the suit a business who would like to retain the vehicle as a company asset when the term has ended.

Key advantages of a lease purchase include:

• They are more flexible due to varying interest rates, the initial deposit being higher and the ability to command the final payment.
• The deposit tends to be 3 payments upfront and as such is considered a low cost.
• As the final payment is negotiated at the beginning of the term, you are able to negotiate a lower monthly payment.
• Full ownership of the vehicle can be taken at the end of the term.
• Vehicles can be added as a balance sheet item and written off against tax.
• The final payment, based on the estimated value of the car is optional.

Though there are these advantages, it should also be noted:

• VAT cannot be recovered on the cost of the car when it is bought.
• All tax, MOT, services etc are the responsibility of the customer.

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