Lease Purchase (sometimes called hire purchase with a balloon) offers lower monthly payments than normal hire purchase. Instead, at the end of the agreement, you make a final lump sum payment (or ‘balloon’) to own your car.
It’s fixed rate finance – but with a lower fixed monthly outlay since you defer repayment of some of the borrowing. At the end of the agreement your options include simply paying the balloon payment, refinancing the balloon payment or settling by part-exchanging or selling your car to a dealership. To sell your car privately, you will need to settle the balloon payment first.
The deposit you pay is flexible, typically between 10% and 40%. The deferred balloon element is calculated on the estimated future resale value of the car.
The difference, plus fixed interest, is repaid in equal installments over an agreed period (24-60 months), plus a final balloon payment.
Benefits of lease purchase
• Low deposit – maximising your cashflow
• Lower fixed monthly payment – simple budgeting
• A better car – lower payments can help you choose a higher specification car
• Flexibility – does not compromise your other lines of credit (your bank or mortgage)
• Assets – you gain vehicle ownership
• No VAT on payments