Drivelease Lease Purchase

Points relating to Drivelease Lease Purchase

A Drivelease Lease Purchase contract is similar to a PCP in that the leasing company uses the retail value of the car to estimate a future value at the end of the contractual period based on its depreciation. This is commonly known as the residual value. You place an initial payment on the car upfront and then you make monthly payments on the difference between the retail value and the residual value. As a consequence, the more the vehicle holds its value’, the better the deal – meaning luxury, prestige and performance cars are often popular for lease purchase deals.

 

However, there is a fundamental difference between lease purchase and PCP. Whereas PCP gives you the option to buy the car outright at the end of the contractual period, with lease purchase you already have an agreement to buy the car. There is no return option.

 

Therefore at the end of the lease agreement, the customer must make a final balloon payment. This may be done through a cash payment or alternatively with additional finance or part exchanging the vehicle for a new model.

 

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 the contract.

Advantages to Drivelease Lease Purchase contracts

Luxury, prestige and performance vehicles: Lease purchase agreements are better suited to the finance of these types of vehicles due to the fact that you must take on the residual value. Higher residual values will also result in lower monthly payments.

 

Company asset: Lease purchase is ideal for companies that want to retain the vehicle as an asset to show on their books.

 

Frees up finance: Lease purchase contracts allow you to take control of a vehicle whilst retaining capital to put into your company. Initial deposits can be as little as the equivalent of three months’ payments.

 

Lower monthly payments: Payments are typically cheaper than hire purchase.

 

Balance sheet: The vehicle can appear on the company balance sheet and you can write down the value against taxable profits.

 

Ownership: Once the balloon payment is made, the vehicle is yours to do with as you please. Many companies choose to part exchange the vehicle for a new model.

Disadvantages to Drivelease Lease Purchase

Road fund licence is not included as part of a Lease Purchase agreement.

 

Balloon payment: You must have sufficient finance available to settle the balloon payment at the end of the agreement because it is not optional. In some cases it can be higher than the residual value of the vehicle.

 

VAT not recoverable: You can only reclaim VAT if the car is used exclusively for business use.

 

Ownership risk: The car is yours and thus the effects of depreciation and the costs of maintenance and disposal are all risks to consider throughout the contract.

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