Lease Purchase

Lease purchase is a type of conditional sale agreement, which implies that the consistent installments are like a lease/rental agreement yet you will possess the car toward the finish of the arrangement. You might be solicited to pay a number from regularly monthly payments toward the beginning of your agreement (referred to as ‘advance payments’ and the leasing equivalent of a deposit) and an entirety is normally conceded to the finish of the arrangement. The deferred entirety will be controlled by the age and mileage of the car toward the finish of the agreement. The contrast between a lease purchase and a PCP agreement is that the deferred sum (referred to as a Guaranteed Minimum Future Value (GMFV) in a PCP deal) must be paid on a lease purchase agreement. On a PCP, it’s optional.

At the beginning of the agreement

You might be requested to put down advance payments (essentially a deposit) against the car and you will then make regularly monthly payments for the term of your agreement. The deferred payment that must be paid at the end of the agreement is what the car will be worth at that point in time, taking into consideration your anticipated mileage, the age of the car and the length of the agreement.

This deferred figure depends on the estimated future resale estimation of the car. Consequently, the more the car 'holds its value', the more affordable the lease purchase agreement becomes. Premium or luxury cars are therefore often more likely to be financed by a lease purchase agreement.

At the end of the agreement

There is no option to return the car at this point so the deferred entirety must be made. This might be done through a cash payment or on the other hand by means of a second finance agreement.. A typical lease purchase agreement will last between two and four years. It is conceivable to completely or partially settle the outstanding finance anytime by reaching your finance company.

Advantages of lease purchase

  • Lower monthly repayments since advance installments (deposit) are by and large paid toward the start of the agreement and an balloon payment is deferred until the end.
  • Lower monthly repayments may help you to bear the cost of a higher specification car.
  • The deferred balloon payment encourages you to save money to pay off the car at the end of the agreement.
  • You pick the length of the finance agreement.

Things to remember

There is no return alternative toward the finish of the understanding.

You should have sufficient funds (or apply for a second finance agreement) to pay off the deferred sum.

Depending on current market conditions, the value of the outstanding balloon payment may be higher than the actual market value of the car.

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