Business Lease Purchase
What is Business Lease Purchase?
Lease Purchase is ideal for a business wishing to own the van without buying outright.
Lease Purchase is a form of vehicle finance ideal for business clients who’d prefer to own the vehicle. Business lease purchase contracts are available exclusively to business customers and are intended to offer dedicated vehicle funding. Your company will eventually own the vehicle, with no large upfront cash outlay.
A lease purchase agreement normally includes an initial deposit followed by monthly payments until the end of the contract. The deposit and monthly payments are based upon the retail value of the brand-new vehicle, the length of contract, and the anticipated residual value of the van at the end of the contract.
Lease purchase is usually a finance-only package.
Potential Advantages:
- Low initial deposit payment
- Fixed mileage contract
- Business Lease Purchase can bring a huge tax advantage. It can reduce a monthly VAT liability: VAT is technically paid at the outset, so can be timed to coincide with the company’s VAT quarter. It can thus be claimed back against any VAT owed. On commercial vehicles, this can be claimed at 100%.
- As an on-balance sheet acquisition, Business Lease Purchase can be used for writing down allowances against profits. This is highly advantageous for businesses wanting to reduce their corporation tax liability.
- Effective budgeting - the vehicle is owned by the company once the contract has been paid off
- Monthly payments are not subject to VAT
- The vehicle becomes your company’s asset and is registered to the company
- Lease Purchase frees up finance for other business costs
- The vehicle appears on your balance sheet and the value is recorded against taxable profits
- The better the van holds its value, the better deal for your business, as you take on the residual value
Potential Disadvantages:
- Balloon payment at the end of the contract
- Although the van is owned once the balloon payment is settled, occasionally the payment is higher than the residual value
- Doesn’t include maintenance or any other value-added services
- Fully comprehensive vehicle insurance is mandatory
More Information on Lease Purchase:
As a flexible product, it’s perfectly possible to pay a larger initial payment, and thus reduce the monthly payments. The monthly cost is calculated from the difference between the retail value and the depreciation value, plus interest. Lease Purchase can be advantageous on a vehicle which holds its value.
Lease Purchase and Contract Purchase differ in that instead Contract Purchase offers the choice to purchase the vehicle at the end of the contract. With lease purchase, you have already entered into that contract to purchase the vehicle.
This contract is suitable for those who are certain they want to take ownership of the van once the contract ends, including paying any balloon payments. Lease Purchase agreements usually last from two to four years. However, the agreement can be settled at any time.
Please contact the Blue Chilli Van Leasing team to talk through the best option for your business.
