Lease Purchase is structured in the same way as a Personal Contract Purchase(PCP) in that a capital lump sum amount, known in this instance as the Residual Value (RV), is deferred to the end of the agreement and this must be settled to gain outright ownership. As with PCP, the RV is based on the type of vehicle and the suggested annual mileage covered by the vehicle. By deferring a lump sum to the end of the agreement, the RV reduces the regular monthly payments and makes more expensive vehicles far more affordable.
As a customer you will benefit from a slightly lower finance rate with a Lease Purchase product as, unlike PCP, there is no guarantee offered at the end of the agreement in terms of handing the vehicle back to the finance company. In other words, unlike PCP, Lease Purchase offers no option to walk away from the vehicle at the end of the contract.It is your responsibility then to settle the final RV (or balloon payment) either though additional finance, cash or settlement by part-exchange.
"Put simply, Lease Purchase has a lower monthly payment than PCP, but you have to purchase the car at the end of the lease term"
Lease Purchase repayment periods are typically taken over 2, 3 or 4 years and settlement can be made at any stage of the agreement. Deposits for Lease Purchase are normally a minimum of around 10% and a maximum of 50% of the total vehicle price. Becuase the funder is exposed to less risk, customers will normally benefit from a slightly lower interest rate and there will be no fixed mileage contract.
Below is a short video which explains how Lease purchase finance works.
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