Lease purchase is structured in the same way as contract purchase, with a lump sum or so-called balloon payment made at the end of the agreement based on the residual value.

However, while you may benefit from a slightly lower finance rate, unlike a contract purchase agreement you cannot walk away from the vehicle at the end of the contract. But, if the vehicle holds its value though, the better the deal.

A typical lease purchase agreement will last from two-four years, though with most companies it is possible to settle the agreement at any point during this period.

  • Pros: payments are typically cheaper than hire purchase; vehicle can appear as a balance sheet item and you can write down the value against taxable profits; and frees up finance.
  • Cons: you must have sufficient finance to afford the balloon payment at the end of the contractual period because it is not optional; you can only reclaim VAT if the car is used exclusively for business use; and ownership means you take residual value risk.