Traditional vehicle finance
Lease Purchase, a product very similar to Hire Purchase, it is a more conventional
funding facility that has been overshadowed 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 advantages for organisations.
Key customer benefits:
- Ideal for non-VAT registered companies that require ownership of the vehicle at
the end of term
- Effective budgeting with the flexibility of the Leasing Companies 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, when 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 organisation is liable for the full value
of the vehicle and has no option to return it at the end of the contract.
If the agreement is for an LCV (light commercial vehicle) then the full amount for
the VAT on the purchase must be paid in advance by the organisation. This is a reclaimable
payment providing you are a VAT registered business.
What is Lease Purchase?
Lease Purchase is a hire purchase agreement provided by the Leasing Company regulated
by the Consumer Credit Act 1974.
This product is ideal for a Non-VAT registered customer that wants eventual ownership
of the vehicle. This is a dedicated funding product that does not include maintenance
or any other value added services.
If the agreement is for an LCV (commercial vehicle), then the full amount for the
VAT on the purchase must be paid in advance by the oganisation. As this is a 'purchase'
agreement you would then be able to reclaim this on your next VAT return (subject
to VAT status).
Road Fund Licence is provided for the first 12 months of the contract only.
The vehicle is registered in the organisations name from the start unless the vehicle
is a Special Offer and therefore will be registered to the Leasing Company and re-registered
prior to 2nd year RFL becoming due.
How does it work?
The vehicle is registered in the name of the organisation, when this is a company
the vehicle will appear on the balance sheet and writing-down allowances can be
However, the Leasing Company does allow a balloon which is based on 90% of their
calculated future value based on term and mileage. This allows the organisation
to budget more effectively. You only acquire ownership of the vehicle once the 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 writing down allowance
is claimed by the organisation subject to current legislation.
The monthly 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 organisation has a couple
Re-Finance the final rental if applicable subject to credit. (Regulated & Un-Regulated)
28 days notice is required prior to contract expiry date.
You 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 and balloon.