What is lease purchase and how does it work?
When you’re looking for a new car, it can be difficult to decide which finance option is right for you.
Nowadays, there are options to suit every circumstance and need, and lease purchase (LP) is one.
Here’s what we’re going to cover in this article:
- What is lease purchase?
- How does lease purchase work?
- When will I own the car?
- Advantages and disadvantages of lease purchase
- What are my other finance options?
- Used vs new car lease purchase
- How to get the best lease purchase deal
What is lease purchase?
Lease purchase is a type of car finance that’s ideal if you want low monthly payments but would also like to own the vehicle outright at the end of your agreement.
On a standard lease, otherwise known as a personal contract hire agreement, there’s no option to own the vehicle. It’s a long-term rental.
And on a lease purchase term, you still get to enjoy the same benefits of a lease, such as low monthly payments. But at the end, you’re contractually obliged to make the final payment and take ownership of the car.
Usually, the final payment is a substantial lump sum and the equivalent of what the vehicle is worth at that point. However, there’s usually an option to refinance that final payment into more manageable chunks.
Lease purchase can be a great way to defer a large payment if you want time to save, you’re waiting on an influx of cash, or you’re certain you want to own the vehicle outright at the end.
How does lease purchase work?
Lease purchase works in the same way as most other types of car finance. It follows a simple six-step process.
Step 1: Find the car you want
It’s good to have an idea of what vehicle you want before you submit a finance application. And you can see which vehicles we have available here.
However, for some, it works best the other way around; knowing what your financial limit is if you have a less-than-perfect credit score or low income so you can find the right car to fit your budget.
Step 2: Apply for finance
Using our quick and easy Apply Now tool, you can find the right lender for you without affecting your credit score.
That’s because our initial checks are soft, meaning they don’t harm your credit rating or appear on your file.
Once you’ve submitted your application, we’ll work to find you the best lease purchase deal to fit your circumstances and budget.
You can see if you’ll be accepted for finance in minutes.
Step 3: Completing the paperwork
Once you’re approved, we’ll handle all the admin for you. All we’ll need is a few signatures from you once you’re happy with everything.
You can either do this via email, so you can go through all the documentation at your own pace and ask any questions you may have, or in person at our state-of-the-art showroom in Lancashire.
Step 4: Taking delivery
When everything is signed, it’s time to take delivery of your new car. We can deliver your vehicle directly to your door anywhere in the UK, or you can come and collect it from our showroom.
Step 5: Enjoy your new car
Once you’ve taken delivery, it’s time to enjoy your new vehicle. This will be on a lease basis for however long you’ve chosen your contract to last.
Step 6: Take ownership of the vehicle
When your lease contract is up – which usually lasts between 12 and 60 months, then it’s time for you to take ownership of the vehicle so it becomes yours legally.
You do this by making the final payment which transfers ownership from the finance company to you.
When will I own the car?
At the end of your lease purchase, which is after you’ve made the final payment, you’ll be the legal owner of the vehicle. Then, the car is yours to do as you wish.
Advantages and disadvantages of lease purchase
Like all financial decisions, a lease purchase agreement comes with advantages and disadvantages.
And before you sign your contract, it’s important to know what they are so you can make an informed decision.
Advantages of lease purchase
- Enjoy low, fixed monthly payments
- Drive a car you may not otherwise be able to afford
- Can include maintenance costs in your monthly payment to avoid extra charges for services and MOTs
- Road tax is usually included in your monthly payment
- Don’t have to make a big upfront payment
- The car is legally yours after you make the final payment
- No mileage restrictions or servicing requirements as the vehicle will be yours at the end
Disadvantages of lease purchase
- Legally obliged to pay the final payment at the end of the agreement
- The vehicle isn’t yours until you make the final payment
- Your final payment may be higher than the car’s worth at the time
What are my other finance options?
When it comes to getting your new car, you have several finance options available as well as lease purchase.
Lease purchase vs personal contract hire
Otherwise known as a lease, personal contract hire is a low-cost, low-commitment way to drive the car you want.
It’s similar to a lease purchase; however, you’re not obligated to buy the car at the end of your agreement. In fact, with a personal contract hire agreement, you never own the car. It’s just a long-term rental.
Further reading: What is personal contract hire and how does it work?
Lease purchase vs personal contract purchase
With a personal contract purchase, or PCP, you make monthly payments – like a lease purchase – but instead of having to buy the car at the end, you have three choices.
One is to pay the final payment and buy the vehicle; however, you can also either hand the car back and walk away – like a lease – or exchange the vehicle for another.
A PCP is great if you’re uncertain about what you want to do with the vehicle at the end of your term. It gives you more flexibility and the opportunity to decide what works for you at the time, rather than having to predict what might be best a few years in advance.
Further reading: What is personal contract purchase and how does it work?
Lease purchase vs hire purchase
Hire purchase is a way to finance a vehicle by spreading the total cost of the car evenly over fixed monthly payments.
Compared to a lease purchase, its monthly payments are usually higher – because you’re covering the entire cost of the car.
However, there’s no big final payment to make, and once you’ve paid your final payment on a hire purchase, the car is legally yours – like it is with a lease purchase.
Further reading: What is hire purchase and how does it work?
Used vs new car lease purchase
When it comes to finding the right car for you, deciding whether to take out a lease purchase on a new or used vehicle is a question to consider.
Advantages of a new-car lease purchase
- Get to enjoy the vehicle in its best years
- Usually lower monthly payments than if you took the vehicle out on PCP or hire purchase
- Still under manufacturer’s warranty
- The vehicle will be worth more when you buy it at the end compared to a used car
Advantages of a used-car lease purchase
- Much lower cost compared to a new vehicle
- Can still be under manufacturer’s warranty depending on age and mileage
- Typically lower monthly payments than if you took the vehicle out on PCP or hire purchase
- Lower final payment to buy the vehicle compared to a new car
How to get the best lease purchase deal
Getting the best deal depends on what you class as the “best deal”.
For some, it may be the lowest monthly payment possible – but then you’ll have more to pay at the end.
For others, it could be a lower final payment – but then you’ll pay more over the course of your monthly payments.
The best deal is usually a balance of the two. You want comfortable repayments without the worry of an oversized final payment.
And to do that, you need to find the deal that comes with the lowest total amount repayable. That’s the total sum of the money you’ll pay to own the car eventually.
So, before you sign an agreement, shop around to make sure your total amount payable is the lowest it can be. But this advice also comes with a word of caution – for two reasons.
Applying for finance
When searching for the best deal, you’ll likely have to submit a few finance applications.
That’s so you can get an accurate price.
However, when doing so, make sure your dealer or finance provider uses a soft search – so it doesn’t show up on or affect your credit file.
If you make too many hard applications – finance applications that show up on your credit file – you’ll damage your credit score and affect your chances of being approved.
That’s because, to lenders, you look as though you’re desperate for credit, which may put them off lending to you.
To ensure you don’t damage your score, check with your dealer that their search is soft before submitting your application.
Here at Zero Deposit Car Leasing, all our initial searches are soft, so we can find you the best deal with the right lender without affecting your credit score.
It’s easy to get started, too. Just fill out a quick form and find out in minutes whether you’ll be approved without affecting your credit score.
Make sure it’s a dealer you can trust
When finding the best lease purchase deal, you need to make sure you choose a dealership you can trust.
You can do this by checking out their real customer reviews on Trustpilot or speaking to family or friends who have used them in the past.
Can I get a lease purchase?
It’s quick and easy to find out whether you can get a lease purchase. Check your eligibility below by entering a few details, and we’ll let you know in minutes whether you’ve been approved without affecting your credit score.