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Lease Purchase is another traditional method of finance where the initial payment is usually equivalent to 10% of the cost of the vehicle, followed by fixed monthly payments and a final balloon payment at the end of the agreement. Periods can normally be arranged for anywhere between 12 and 48 months and when all of the payments have been made the customer gains ownership of the vehicle. Because a portion of the repayment (the balloon) is deferred until the end of the agreement the monthly payments are lower than for an equivalent Hire Purchase agreement, although the total amount repayable will be higher. Customers should note however, that it is their responsibility to pay the balloon payment and they can not simply hand the vehicle back. This can lead to a serious negative equity problem if the value of the vehicle is not as high as the final payment. When compared to a contract purchase type agreement there is little to recommend a Lease Purchase. Under a Lease Purchase agreement, vehicles appear on a company's balance sheet as an asset of the business. Therefore capital allowances are applicable, so an annual writing-down allowance of 25% per annum (capped at £3,000 per annum) can be off-set against taxable profits, in addition to all interest charges and a balancing allowance (the difference between the written-down value and the sale price) when the vehicle is disposed of. << Back to Business Customer Solutions
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