Lease purchase is the van world’s answer to lower monthly payments. It works like hire purchase, but part of the cost is held back as a final payment, which you must pay to own the van. It’s widely used by businesses because PCP is rarely offered on vans.
In short
With lease purchase, you pay a deposit, lower monthly payments and then a fixed final payment, after which the van is yours. Unlike PCP, the final payment isn’t optional and isn’t guaranteed: if the van is worth less than you owe, you still have to pay it.
What is lease purchase?
Despite the name, lease purchase is a form of hire purchase, not a lease. You’re buying the van in instalments, with a large final payment, sometimes called a balloon, at the end. It’s very similar to balloon HP for cars. Because part of the cost is deferred, the monthly payments are lower than standard van HP.
How lease purchase works
- Pay a deposit, often including any VAT upfront for a business.
- Make lower monthly payments for the term, usually two to five years.
- Pay the final payment at the end, after which you own the van.
- Deposit£2,400 upfront
- Monthly payments48 × £433.65
- Final payment£7,000, then the van is yours
- £2,400Deposit8% of total
- £20,815Monthly payments69% of total
- £7,000Final payment23% of total
Total you pay: £30,215, including £6,215 interest.
Worked example
A van costs £24,000 (excluding VAT). You pay a £2,400 deposit and borrow £21,600 over 48 months at an illustrative APR of 10.9%, with a £7,000 final payment.
- Monthly payment: about £433.65, around £118 less than HP
- Total including the deposit and final payment: about £30,215, around £1,324 more than HP
You pay more interest overall because you’re borrowing the £7,000 for the whole term. These figures ignore VAT and fees and are not a quote.
Lease purchase vs PCP vs HP
| HP | Lease purchase | PCP | |
|---|---|---|---|
| Monthly payments | Highest | Lower | Lower |
| Final payment | None | Compulsory | Optional |
| Final payment guaranteed? | Not applicable | No | Yes |
| Hand the van back instead? | Not applicable | Not usually | Yes |
| Mileage limit | None | Usually none | Yes |
| Availability on vans | Wide | Wide, mainly business | Rare |
The key difference is the guarantee. With PCP, the lender takes the risk if the vehicle is worth less than the final payment. With lease purchase, that risk is yours.
Pros and cons of lease purchase
Pros
- Lower monthly payments than HP, which helps cash flow
- You own the van once the final payment is made
- Usually no mileage limit
- Widely available to businesses, unlike PCP
Cons
- More interest overall than HP
- The final payment is compulsory and not guaranteed
- If the van is worth less than the final payment, you still owe it in full
- You need a plan to fund a large lump sum at the end
Planning for the final payment
Decide how you’ll fund the final payment before you sign. Common options are paying it from business cash, refinancing it, or selling or part-exchanging the van and using the proceeds. High-mileage work vans can lose value quickly, so compare the final payment with what similar vans are likely to be worth at the end of your term.
Lease purchase FAQs
Can I hand the van back at the end of lease purchase?
Not usually. The final payment is part of what you’ve agreed to pay. If your agreement is regulated, you may be able to use voluntary termination once you’ve paid half the total amount payable, but many business agreements aren’t regulated.
Is lease purchase only for businesses?
It’s mostly used by businesses, but some lenders offer it to sole traders and private buyers. The agreement is regulated or not depending on who borrows and how much.
Can I reclaim VAT on lease purchase?
Because lease purchase is a form of HP, VAT is usually charged on the van’s price upfront rather than on each payment. A VAT-registered business can usually reclaim it, subject to how the van is used. Check with your accountant.