Lease purchase Car finance FAQs: 25 common questions answered

Lease purchase clarity for today’s UK car buyers

Understanding APR is not just percentages - it is what you will really pay over time.

A lease purchase agreement can reduce monthly outgoings while keeping the option to own the car. With UK finance volumes rising in 2025 and EV deals expanding, knowing how deposits, balloon payments and rates work helps you compare offers with confidence.

Who benefits most from lease purchase?

Lease purchase suits drivers who want lower monthly payments than hire purchase and intend to keep the car. It is often used for higher-value or performance models and increasingly for EVs. If you are happy to commit to the final balloon payment and prefer no mileage caps, this could be a strong fit.

Key terms that drive your deal

• Deposit - typically 10% to 20% of the vehicle price. Larger deposits reduce monthly costs and total interest.
• Fixed monthly payments - predictable budgeting across the term, usually 24 to 48 months.
• Balloon payment - the final lump sum required to take ownership. Unlike PCP, paying the balloon is mandatory to own the car.
• APR and interest rate - UK car finance averaged around 7.48% on floating rates in mid-2024. Your rate reflects credit profile, loan size and term.
• Ownership - the finance company owns the car until all payments, including the balloon, are settled.
• Flexibility - typically no mileage limits and fewer condition penalties because ownership is expected at the end.

Quick comparison of common products

If you plan to keep the car, lease purchase aligns costs with that goal.

Configuring your lease purchase options

• Deposit choices: 0% to 20% is common. A higher deposit cuts interest and monthly payments.
• Term lengths: Usually 24 to 48 months. Longer terms shrink monthly payments but increase total interest.
• Balloon sizing: Larger balloons reduce monthly payments but require careful end-of-term planning.
• Rate types: Most deals are fixed for certainty. Variable-rate products exist but are less common for consumers.
• Vehicle types: Lease purchase is popular for premium cars and increasingly for EVs, supported by the UK’s zero-emission mandate and growing BEV adoption in fleets.
• Where to shop: Main dealers, brokers and online platforms. Compare total payable, not just the headline APR.
• End-of-term choices: Pay the balloon, refinance it, or sell or part-exchange the car to cover it.

Standout tip: request a settlement illustration upfront showing total interest across different deposits and terms.

Costs, impact and key risks

The total cost combines deposit, monthly payments, balloon payment, interest and fees. With average UK car finance rates around 7.48% in 2024, improving your credit profile can materially reduce your overall cost.

Market context matters. UK consumer car finance saw modest growth in 2025, with forecasts pointing to higher new business values across the year. Competition may support sharper pricing, especially on new car and EV deals.

Risks to weigh:

• Balloon risk - you must fund the final payment to own the car.
• Early exit costs - settlement figures can be high and voluntary termination rights are more limited than PCP or HP.
• Value uncertainty - if the car’s value is below the settlement, you may need to contribute.
• Rate sensitivity - longer terms increase total interest even if the monthly payment is lower.

Who is likely to be eligible?

• Credit profile: Strong credit improves approval odds and APR. Thin files or adverse credit can mean higher rates or declines.
• Affordability: Lenders assess income, outgoings and debt-to-income ratios under FCA expectations.
• Employment and income: Payslips or SA302s, plus bank statements, typically required.
• Vehicle criteria: Age, mileage and condition caps may apply, especially for refinancing balloons.
• Residency and ID: Proof of UK address and identity is standard.

Practical preparation: check your credit score, clear small debts where feasible and gather documents early to speed approval.

From search to ownership - the typical journey

1. Set budget, deposit and target monthly payment.
2. Check credit score and tidy any report errors.
3. Compare APRs, fees and total payable across lenders.
4. Select deposit, term and balloon configuration.
5. Complete affordability checks and provide documents.
6. Sign agreement and arrange insurance and delivery.
7. Plan for the balloon payment well before maturity.

Weighing up the pros and cons

Pros:

• Lower monthly payments than hire purchase for the same car.
• Usually no mileage caps - useful for high-mileage drivers.
• Clear path to ownership after the balloon payment.
• Attractive for higher-value and EV models where residuals can be strong.

Cons:

• Must pay the balloon to own the car.
• Less flexible than PCP for early exits.
• Total interest can be higher with long terms or small deposits.
• Car value swings can affect settlement outcomes.

Smart checks before you sign

• Stress-test the balloon - assume a lower resale value and confirm you can still exit.
• Compare total payable, not just APR.
• Ask about fees: arrangement, option-to-purchase, early settlement.
• Confirm insurance, maintenance and warranty responsibilities while the finance company owns the car.
• For EVs, factor charger installation and tariff costs into your budget.

A five-minute check of fees and settlement terms can save hundreds later.

Alternatives worth comparing

• PCP: Lower monthly payments with the option to return the car. Mileage limits apply and condition charges are possible.
• Hire Purchase: Higher monthly payments but no balloon at the end - you own the car after the last instalment.
• Leasing (PCH): Fixed rentals with mileage caps. You never own the car.
• Personal loan or cash: Potentially competitive rates and ownership from day one.

Table - when each option may fit best

Frequently asked questions

• Who owns the car during a lease purchase? The finance company owns it until all payments, including the balloon, are made. You are responsible for insurance and maintenance throughout.

• Are there mileage limits? Typically no mileage caps on lease purchase because ownership is expected, though excessive wear may affect early settlement or part-exchange values.

• Can I end the agreement early? Yes, but expect settlement figures and possible fees. Lease purchase has more limited voluntary termination rights than PCP or HP.

• How big is the deposit? Commonly 10% to 20%. Higher deposits reduce monthly payments and total interest. Some lenders offer low or zero-deposit deals subject to affordability and credit.

• What happens at the end? Pay the balloon to own the car, refinance it, or sell or part-exchange the car to cover the amount.

• What about EVs? Lease purchase deals are increasingly available for EVs, reflecting UK policy and growing BEV uptake. Compare incentives and warranty coverage for batteries and drivetrains.

Your next move with Switcha

• Check your credit score and set a realistic deposit.
• Compare total payable across at least three offers.
• Use Switcha to explore lease purchase and alternatives side by side, including EV deals.
• Shortlist two vehicles and request settlement examples with different balloons. Clarity now avoids surprises later.

Important information

This guide provides general information, not personalised advice. Finance is subject to status, affordability and lender criteria. Rates and incentives change. Always read the agreement, fee schedule and settlement terms before committing.