If you`re in the market for a new car, you may have heard the term ”lease purchase agreement.” This type of agreement is quite different from traditional car financing, and it`s important to understand the differences before signing on the dotted line.

So, what is a lease purchase agreement on a car? Essentially, it`s a combination of a lease and a purchase agreement. The customer agrees to lease the car for a certain period of time (usually two to three years), and at the end of the lease term, they have the option to purchase the car outright.

During the lease term, the customer makes regular payments to the leasing company, just like with a traditional lease. However, unlike a traditional lease, a portion of each payment goes towards the purchase price of the car. This is known as a ”lease purchase option fee.”

At the end of the lease term, the customer has the option to purchase the car for the remaining balance on the purchase price. This can be a good option for customers who are unsure about whether they want to commit to purchasing a new car outright, but still want the option to buy it at the end of the lease term.

One potential drawback of a lease purchase agreement is that the lease payments are typically higher than traditional lease payments. However, some customers may be willing to pay the higher price in exchange for the flexibility of being able to purchase the car at the end of the lease term.

It`s important to carefully read the terms of any lease purchase agreement before signing. Make sure you understand the total cost of the car, including the purchase price and any fees associated with the lease agreement. Additionally, take note of any penalties or fees for ending the lease early, in case you change your mind about purchasing the car.

Overall, a lease purchase agreement can be a good option for customers who want the flexibility of being able to purchase a car at the end of the lease term. However, it`s important to fully understand the terms of the agreement before signing on the dotted line.