When you lease a car, the general idea is to hand the car back at the end of the agreement. That’s what makes it different to buying a car on finance.
If you do want the option to own at the end, then you’ll want to look at a finance agreement rather than a lease agreement
In this article, we look at the different types of agreement and what sort of options they offer for you to buy your car at the end.
What agreements will let me own the car at the end?
When someone leases a car, generally, they have no intention of buying the car. Lease agreements are designed to hand the car back at the end of the contract. Therefore, the sort of contracts you should be looking at are finance agreements.
The agreements that explicitly give you the option to own the car at the end are:
Do I own my car at the end of a contract purchase?
A contract purchase is the more flexible of the lease and finance agreements. There is a contract purchase for private individuals, aptly named personal contract purchase. What happens at the end of the both of these is the same.
You (or your business) essentially pay fixed monthly payments for a period of time and then once that time is up you have three options;
- You can hand the car back with nothing further to pay
- Subject to mileage and condition charges of course
- You can part exchange the car
- The money can then be used as a deposit for your next car, if you wanted
- Or, you can buy the car
- Which we will come onto in a minute
So, as you can see, a CP offers a degree of flexibility that other agreements do not. Generally speaking, you won’t have to decide until towards the end of your contract either, so if you are unsure, you have plenty of time to come to a decision.
Owning your car at the end of a Contract Purchase
If you choose to own your car at the end of your contract purchase, then you will have to pay what is known as the minimum guaranteed future value (MGFV). This is how much the car is expected to be worth at the end of the contract.
The good news is, this is set at the beginning of your contract. So, if you should want to buy the car, you know how much you are going to have to pay for it at the end.
How is the MGFV calculated?
The minimum guaranteed future value of the car is, as I mentioned, pre-agreed at the start of your agreement. How it’s calculated depends on a number of factors. These include;
- The type of vehicle
- The number of years you are keeping it for
- The mileage you are expected to be doing
Owning your car at the end of your hire purchase
Essentially, the point of a hire purchase is to own it at the end. It’s not a lease, it’s a finance agreement.
A hire purchase involves you paying a series of monthly payments for a fixed period of time. Once the final payment has been made, the car is yours to keep.
With a HP agreement, you have no mileage or condition restrictions, and you go into it with the intention of owning at the end. There’s no option to hand it back.
Usually HP’s last between 12 or 60 months, and you will have the option to put down a deposit and have a balloon payment at the end. This is a slightly higher payment that you make at the end of your contract to clear off the remaining finance.
Can I buy my vehicle at the end of a finance lease?
You can, if you have a van.
A finance lease is perfect for those whose vehicle is going to be doing excessive mileage and suffer more than just fair wear and tear. If you have a van on a finance lease, you will have the option to buy the vehicle at the end.
If you have a car, however, you will not be able to. Instead you will either have to return the vehicle where the finance house will put it up for auction to clear the remaining finance (if they sell it for less, you’ll have to make up the difference) or sell it to a third party. If you choose to do this you will have to find a buyer for the vehicle and introduce them to the finance house. If they pay more for the vehicle you will get the equity. If they don’t, however, then you will have to make up the difference.
You can do the same with a van of course, but you do also have the option to own it at the end.
So, there are agreement options that allow you to buy the car at the end. While these are considered finance agreements, the structure is similar to that of a lease but there is the option to buy the vehicle built into the contract.
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