The lease purchase form of car finance is structured in a similar manner to the type of car finance known as Personal Contract Purchase (PCP) and is sometimes called Hire Purchase with a balloon. The balloon is the payment due at the end of the motor finance contract period. The monthly rental on lease purchase agreements is determined by the cost of the vehicle, the lease purchase contract period and the estimated future value of the vehicle - which is based on the projected annual mileage and therefore the mileage at the end of the lease purchase contract. When the end of the lease purchase contract is reached, a payment is due which is equivalent to the estimated future value (the balloon payment) and at this point the vehicle then becomes the property of the lessee.
The lease purchase form of motor finance is a type of car finance especially suited to vehicles which would be used for business, as the VAT is reclaimable if the vehicle is used solely for business. New start businesses as well as established business users will be ideally suited to taking motor vehicle finance in the form of a lease purchase contract.