What's the difference between Lease Purchase and PCP?

The key difference is what happens at the end of the agreement. With PCP, the final balloon payment is a Guaranteed Future Value (GFV), giving you the option to return the car rather than pay the balloon to own it. With Lease Purchase, there is no guaranteed future value or hand-back option, so the final balloon must be settled. The balloon payment helps reduce monthly repayments compared with financing the full cost of the vehicle across the term, and there are typically no excess mileage charges. However, you take on the risk if the vehicle is worth less than the outstanding balloon at the end.

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Lease Purchase

For high-value, specialist, or classic cars, Lease Purchase strikes the perfect balance between affordability and ownership. At Charles & Dean, we offer specialist guidance to help you navigate its benefits and considerations. Whether you want to preserve cash flow or secure a unique vehicle, Lease Purchase could be the ideal solution.

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What is Lease Purchase?

Understanding Lease Purchase

Lease Purchase is a car finance option designed for those who want to own their vehicle while benefiting from lower monthly payments.

Initial Deposit: Your First Step Forward

Make an upfront deposit, typically around 10% or more of the vehicle’s total price. This initial payment helps reduce the overall amount financed.

Fixed Payments: Pay a Set Monthly Amount

Pay a set monthly amount over an agreed term. Typically with higher balloon values than Personal Contract Purchase (PCP), Lease Purchase helps reduce monthly costs, making it a cost-effective way to secure your ideal vehicle.

Balloon Payment: Your Options

A final lump sum based on the vehicle’s predicted residual value secures full ownership. At this stage, you can either pay off the balloon in full, refinance it (subject to approval), or sell the car and use the proceeds to settle the balance.

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Product Suitability

Is Lease Purchase Suitable For You?

Ideal for high-value, specialist, and classic cars, Lease Purchase allows for higher balloon values than Hire Purchase (HP), reducing monthly costs. Unlike Personal Contract Purchase (PCP), the final payment is not guaranteed, making this a great option for vehicles that hold their value.

However, like any finance option, there are both benefits and drawbacks. Here’s a breakdown to help you make an informed decision:

Benefits of Lease Purchase

Lower Monthly Payments A higher balloon value reduces costs, freeing up funds for other personal or business needs.

Fixed Monthly Payments Enjoy predictable, set payments that make budgeting simple and stress-free.

Drive a Higher-Specification Vehicle Lower monthly costs can make a more premium model attainable, giving you access to enhanced features.

No Mileage Restrictions Lease Purchase provides complete flexibility without penalties for exceeding mileage limits, making it ideal for frequent drivers.

Ownership at the End Once the final balloon payment is made, the vehicle is yours outright.

Drawbacks of Lease Purchase

Higher Overall Borrowing Costs Lower monthly payments can mean more interest paid over time, increasing total borrowing costs.

No Guaranteed Future Value (GFV) Unlike PCP, Lease Purchase doesn’t guarantee the car’s residual value, so you can’t return it to clear the balance.

Higher Risk of Negative Equity A higher balloon payment increases the chance of owing more than the car’s value at the end of the term.

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FAQs

Your questions about Lease Purchase finance answered

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What is Lease Purchase Car finance?

Lease Purchase, often referred to as Hire Purchase with a balloon payment, is a flexible car finance option that covers the full value of the vehicle.

Instead of paying off the entire amount through monthly installments, a significant final payment (the balloon) is deferred until the end of the agreement.

This structure helps keep monthly payments lower while allowing you to own the vehicle outright once the final payment is made.

Can I hand the car back at the end of the agreement?

No, Lease Purchase does not include a hand-back option.

What happens at the end of a Lease Purchase agreement?

You can pay off the balloon, refinance the balloon (subject to status and approval from a lender), or sell the car to cover the final payment.

What vehicles qualify for Lease Purchase?

Lease Purchase can be used for almost any vehicle, but it’s especially suited for high-value or specialist cars with strong residual values.

Can you modify a car on Lease Purchase finance?

Yes, modifications to a car under a Lease Purchase agreement may be possible. However, it’s essential to consult your finance provider beforehand to ensure any changes comply with the terms of your agreement. This ensures you avoid potential penalties or breaches of contract while customising your vehicle.

Are there mileage restrictions with Lease Purchase agreements?

No. While the balloon payment is calculated based on anticipated mileage, there are no excess mileage charges like you’d find with a PCP agreement. This gives you greater flexibility in how you use your vehicle.

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