Lease Purchase Explained

Lease Purchase is the name for a type of car finance agreement that is available through Creditplus. Here, we explain exactly what Lease Purchase is and how it works, along with some handy resources to help you understand further.

Creditplus Definition of Lease Purchase

Lease Purchase is a type of car finance agreement that works by deferring a percentage of the total cost of the car to the end of the term period. This means that monthly payments are generally lower than in a standard car finance package such as a Hire Purchase agreement.

In a Lease Purchase agreement, up to 31% of the total value of the car can be deferred – this is usually based on the residual value. Unlike a Personal Contract Purchase (PCP) agreement, you are obliged to pay the balloon payment at the end of the contract, though it's often possible to re-finance this payment using a new car finance agreement (usually Hire Purchase). Because part of the total cost is deferred to the end of the contract, a Lease Purchase agreement will have lower monthly repayments than an equivalent Hire Purchase agreement on the same car.

With a Lease Purchase agreement, the customer takes responsibility for the depreciation of the car, so add-ons such as maintenance (which are offered with PCP agreements) are not always offered by the lender, but may still be available for purchase through a third party. Lease Purchase agreements are generally open to customers from all credit backgrounds

In summary, the key benefits of a lease purchase agreement are:

  • Defer some of the cost to the end of the agreement.
  • Lower monthly payments
  • No annual mileage limits
  • Fixed monthly payments

The ability to refinance the balloon package at the end of the agreement is another attractive feature. If you do refinance using a hire purchase agreement, you will be unable to defer any payment to the end. Instead, the entire cost of the agreement will be divided across the term of the new finance agreement.

PCP vs Lease Purchase

If you're interested in a Lease Purchase agreement, but want more flexibility, you may be interested in a Personal Contract Purchase agreement which gives the customer the option to either hand the vehicle back at the end of the contract, purchase it, or part-exchange it to use any remaining equity as a deposit for a new car finance agreement.

To find out more about Personal Contract Purchase agreements, visit our Personal Contract Purchase (PCP) page which includes a handy explainer video of the product.

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