Lease Purchase and Hire Purchase Explained!

Lease Purchase and Hire Purchase Explained!

In both Hire Purchase and Lease Purchase you will make monthly payments with the option to own your vehicle at the end of the contract.

The hire purchase and lease purchase process;

  1. Once you have chosen your vehicle you will agree upon the length of your contract. This is typically anywhere between 2 and 5 years.
  2. You will then be asked to pay a deposit, this is a larger sum of money paid upfront. The more money you pay here, the lower your monthly payments will be.
  3. In a hire purchase agreement, the remaining cost of the vehicle is then split up into equal monthly payments.
  4. In a lease purchase agreement part of the value of the car after the deposit has been paid can be deferred and paid at the end of the contract in what is called a balloon payment. The remaining value of the vehicle is then divided into equal monthly payments for the agreed length of your contract.
  5. Once all payments (including the balloon payment) have been made you will own your vehicle. There is no option to hand your vehicle back, so the balloon payment in a lease purchase must be made. You can choose to refinance this sum if you do not want to pay it all in one lump sum.

Read more: What is Personal Contract Hire?

Mileage and fair wear and tear in lease purchase or hire purchase.

There are no mileage restrictions or fair wear and tear conditions with these agreements as you can eventually pay entirely for the vehicle and own it yourself. As the finance company will never have the vehicle returned to them the condition at the end of the contract is of no concern to them.

Who holds the V5 for the vehicle?

Usually, the finance company will register the vehicle to you. There are some finance companies who will hold the V5 until all the required payments have been made.

Read more: Should I Lease or Buy My Next Car?

Who pays for road tax?

It will be your responsibility to pay for road tax. If you have the V5 registered to you, you can pay road tax in the usual way. If the finance company is holding the V5 they will pay the road tax for you and then send you an invoice to pay to cover this sum.

Benefits and points to consider with Lease Purchase and Hire Purchase


  • You have the flexibility to choose the length of your agreement
  • You do not need to worry about fair wear and tear
  • You can own your vehicle at the end of your contract providing all required payments have been made
  • Spreading the cost over monthly payments makes buying a car more affordable
  • You have the flexibility to lower your monthly payments by making a larger deposit


Points to consider

  • In a lease purchase you must make the final payment, refinance or part exchange the vehicle, there is no return option
  • Depending on the condition of the car and the current market conditions there is a possibility the balloon payment in a lease purchase could be higher than the actual value of the car
  • If you do not keep up with repayments the vehicle may be repossessed

If you would like any advice about the finance options available to you, please call the Rivervale team on 01273 433480.

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The comments above do not necessarily reflect Rivervale's views unless clearly stated.

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