What Is Lease Purchase Finance?
Lease Purchase (LP) Finance is a vehicle financing method that combines leasing elements with a final purchase option. It’s an approach that suits individuals who want to own a vehicle eventually but prefer not to pay the full purchase price upfront. This blog explores how LP Finance works, how it compares to other finance options, and what considerations you should keep in mind.
What is Lease Purchase (LP) Finance?
Lease Purchase Finance allows you to drive a car while making monthly payments over a set term. These payments are typically lower than those of a Hire Purchase (HP) agreement because you’re only paying off the vehicle's depreciation, not its full value. At the end of the agreement, a final lump sum, known as the balloon payment, is due. Once this payment is made, ownership of the vehicle is transferred to you. If you decide not to make this payment, you’ll need to arrange refinancing or sell the vehicle to cover the amount.
How Does LP Finance Compare to Other Options?
Lease Purchase Finance shares similarities with other vehicle finance options, but it also has some key differences that may make it more or less suitable for different people.
LP vs. PCP
Personal Contract Purchase (PCP) also involves lower monthly payments and a final payment. However, PCP offers more options at the end, allowing you to return the vehicle, make the final payment to own it, or trade it in. LP does not offer the return option; you must pay the final balloon payment or refinance.
LP vs. HP
Hire Purchase (HP) involves paying off the full vehicle cost in equal instalments, leading to ownership at the end. LP Finance, on the other hand, lowers monthly payments by deferring a large portion of the cost to the final balloon payment. This suits those who prefer lower monthly outgoings but are prepared to handle a larger final payment.
Benefits of Lease Purchase Finance
Lower Monthly Payments
A primary advantage of LP Finance is the lower monthly payments. Because you are not paying off the full value of the vehicle during the term, your monthly instalments are generally more affordable compared to a Hire Purchase agreement.
Flexibility at the End of the Term
While the final balloon payment can be a significant financial commitment, it does offer some flexibility. If your vehicle has retained its value well, you might be able to sell it for an amount close to or even greater than the balloon payment. Alternatively, you can arrange for refinancing to cover the final amount if you want to keep the vehicle.
Access to Higher-End Vehicles
Because LP Finance offers lower monthly payments, it can make higher-end vehicles more accessible. If you’ve had your eye on a premium car but don’t want to stretch your budget too thin with high monthly payments, LP Finance might be a suitable option.
Key Considerations with Lease Purchase Finance
The Final Balloon Payment
The balloon payment is a crucial aspect of LP Finance. This lump sum can be a significant amount, so it’s important to plan for it from the beginning. Options to manage the final ballon payment include saving over the term of the agreement, refinancing, or selling the vehicle to cover the cost.
No Option to Return the Vehicle
Unlike PCP, LP Finance does not give you the option to return the vehicle at the end of the term. This means that you need to be sure you want to keep the vehicle or have a plan in place for the final payment. If you are uncertain about your long-term plans, PCP or another more flexible finance option might be better suited to your needs.
Vehicle Maintenance and Depreciation
With LP Finance, you are committed to owning the vehicle at the end of the term, so it’s important to keep it in good condition. A well-maintained vehicle is more likely to hold its value, which can help when it comes to the final payment, whether you’re selling the car or arranging refinancing.
Is Lease Purchase Finance Right for You?
Lease Purchase Finance can be an appealing option if you want to keep your monthly payments low and are comfortable planning for a larger payment at the end of the term. It offers a path to ownership with the added flexibility of potentially lower upfront costs. However, it’s important to carefully consider your financial situation and long-term plans before committing to this type of agreement.
If you believe LP Finance could be right for you, it’s advisable to seek personalised options from a finance expert. Forza Finance offers tailored Lease Purchase Finance deals that can help you manage your budget effectively while driving the car you want.
For more information and to explore your options, visit Forza Finance’s LP Finance page and take the first step towards finding the right finance solution for your next vehicle.
