What is lease purchase?
A lease purchase is a type of hire purchase (HP) agreement, but instead of paying off the total loan amount throughout the duration of the contract, a residual value is offset until the contract ends. This means that monthly payments are typically lower than other types of asset finance.
How a residual value works
The residual value to be paid at the end of a lease purchase is an estimate of how much the asset will be worth at the end of the contract once all monthly payments have been made. The total amount of the residual value is agreed upon when the contract is taken out.
When all regular monthly payments have been made, your business can either choose to pay the residual value in full or through a peppercorn or balloon finance agreement. This is where you pay the remaining money to the lender as a new loan.
How it can work for your business
We tailor each finance agreement so that it suits your business situation, affordability and cash flow. This includes your deposit amount, finance period, monthly repayments and final payment.
Hire purchase options, including lease purchase, are a suitable finance route if your business is interested in owning the asset but doesn’t have the funds to pay for it immediately. It works well for high-value assets that are likely to have a resale value over time, including; agricultural, construction and manufacturing equipment or machinery.