Lease Purchase

Traditional vehicle finance

Lease Purchase, a product very similar to Hire Purchase, is a more conventional funding facility that has been “outshone” in some respects by more recent products such as Contract Purchase or Personal Contract Purchase. Nevertheless, traditional Lease Purchase / Hire Purchase has a number of strong advantages for customers.

Key customer benefits:

Ideal for non-VAT registered companies that require ownership of the vehicle at the end of term
Effective budgeting with a balloon facility. Ownership of the vehicle can be acquired once the balloon has been paid in full
Monthly payments are not subject to VAT
The vehicle is registered in the name of the customer, and where this is a company, the vehicle will appear on the balance sheet and writing-down allowances can be claimed.

Lease Purchase is a dedicated funding product that does not include maintenance or any other value added services. The customer is liable for the full value of the vehicle and has no option to return it at the end of the contract.

Should the agreement be for an LCV (light commercial vehicle), then the full amount for the VAT on the purchase must be paid upfront by the customer. This is a reclaimable payment providing you are a VAT registered business.

What is Lease Purchase?

Lease Purchase is a hire purchase agreement which can be regulated by the Consumer Credit Act 1974.

Road Fund Licence is provided for the first 12 months of the contract only.

The vehicle is registered in the customers name from the start unless the vehicle is a Special Offer and therefore will be registered to the funder and re-registered prior to 2nd year RFL becoming due.

How does it work?

The vehicle is registered in the name of the customer, and where this is a company, the vehicle will appear on the balance sheet and writing-down allowances can be claimed.

However, the funder does allow a balloon which is based on 90% of their calculated future value based on term and mileage. This allows you to budget more effectively. The customer only acquires ownership of the vehicle once this balloon payment has been paid in full.

What are the financial benefits?

(a) Tax Allowances

Contract Purchase arrangements are treated for tax purposes as a purchase by the customer when the vehicle is brought into use. As a result the 25% writing down allowance is claimed by the customer (maximum £3000 pa.)

The payments for depreciation and interest are not subject to VAT, whereas payments for services bear VAT in the usual way.

What happens at the end on the Contract?

At the end of the term of the Lease Purchase agreement the customer has a couple of options. The customer must pay a nominal option to purchase fee to obtain title to the vehicle, which is included in the balloon payment. Title to the vehicle will be transferred on receipt of the option to purchase fee.

Re-Finance the final rental if applicable subject to credit. (Regulated & Un-Regulated) 28 days notice is required prior to contract expiry date. Intermediary can request a quote 90 days prior to contract expiry day allowing sufficient time for the customer to commit to a re-finance agreement.
The customer must pay a nominal option to purchase fee to obtain title to the vehicle, which is included in the balloon payment. Title to the vehicle will be transferred on receipt of the option to purchase fee.