Car Finance 2026 — Hire Purchase Guide + Worth It?

Quick answer

Hire purchase (financial leasing) requires a 10-30% down payment and monthly instalments over 2-7 years, after which you own the car outright. According to WHEELSTREET data, hire purchase is the most popular financing option in Lithuania, with typical interest rates of 3.5-7% and total overpayment of €1,500-4,000 on a €15,000 vehicle over 5 years.

Financial leasing, operating lease, hire purchase, car leasing... If these terms make you nervous – you're definitely not alone. Even experienced drivers often confuse these concepts, and making the wrong choice can cost thousands of euros.

In this article, we break down everything from the beginning. In simple terms, with real numbers and concrete examples from the Lithuanian market. After reading this guide, you'll know exactly how hire purchase differs from operating leases, when leasing makes sense versus a loan, and how to calculate what your future car will actually cost.

What is hire purchase?

Hire purchase (also called financial leasing or finance lease) is a car financing method where a leasing company or bank buys your chosen car and "rents" it to you for a long-term contract. You pay monthly instalments, and at the end of the contract, after paying the residual value, you become the full owner of the car.

In other words, it's buying on credit with one important detail: while you're paying, the leasing company is the formal owner, not you. However, you use the car as if it were yours – you drive it, maintain it, insure it.

How it works step by step

1. You choose a car – new or used, from a dealership or private seller (depending on the leasing company's terms)
2. You contact a leasing company – submit an application with income documents
3. You receive a decision – usually within 1–2 business days
4. You pay an initial deposit – typically 10–20% of the car's value
5. You sign a contract – the leasing company buys the car and transfers it to you for use
6. You pay monthly instalments – a fixed amount each month for the entire contract period
7. At the end of the contract you pay the residual value – and the car officially becomes your property

Who provides hire purchase in Lithuania?

In Lithuania, car hire purchase (financial leasing) is provided by all major banks and specialized leasing companies:

• SEB Leasing – one of the largest leasing companies in the Baltics
• Swedbank Leasing – finances up to 95% of car value
• Luminor Leasing – flexible terms up to 84 months
• Citadele Leasing – competitive rates, especially for electric vehicles
• Mogo – specializes in used car financing
• SB Leasing – independent leasing company
• Toyota Leasing, BMW Financial Services – manufacturer leasing programs

Each provider has different terms, so it's always worth comparing at least 3–5 offers. You can do this using our leasing calculator, which allows you to quickly compare different options.

Hire purchase vs financial leasing vs operating lease: the big comparison

This is where most confusion comes in. Let's clear this up once and for all.

Hire Purchase (Financial Leasing)

Essence: You "rent" a car with the right to buy it at the end. It's essentially buying on credit.

How it works:

• The leasing company buys the car
• You pay an initial deposit (10–20%) and monthly instalments
• Interest is calculated on the decreasing balance
• At the end of the contract you pay the residual value and become the owner

Ownership during contract: The car belongs to the leasing company. You are a user, not an owner. You cannot sell or transfer the car without the leasing company's consent.

What happens at the end of the contract: You pay the residual value (e.g., 20% of the original price) and the car is re-registered in your name. Or you can return the car to the leasing company.

Maintenance and insurance: Your responsibility. You must have comprehensive insurance (KASKO) for the entire contract period. Maintenance, repairs, tyres – everything is your concern.

Tax aspects:

• For private individuals – no tax relief
• For business – VAT deduction on instalments (if car is used for business), expense deductions based on depreciation rates
• From 2025, deductible expenses depend on CO2 emissions

Typical terms in Lithuania 2026:

• Interest rate: 1.45–2.29% + EURIBOR (depending on car type)
• Total annual interest rate: 3.5–4.5%
• Initial deposit: 10–20%
• Term: 12–84 months
• Residual value: 0–35%
• KASKO: mandatory
• Minimum financed amount: ~5,000 EUR
• Administration fee: 0.5–1% of car value

Operating Lease

Essence: Long-term car rental without ownership transfer. Like renting an apartment – you use it, but it's not yours.

How it works:

• The leasing company buys the car and rents it to you
• You pay a fixed monthly rental fee
• Often the price includes maintenance, tyres, sometimes even insurance
• At the end of the lease – you return the car

Ownership during contract: The car belongs to the leasing company for the entire time. You are a renter.

What happens at the end of the contract: You return the car to the leasing company. Some companies offer the option to extend the lease or exchange for a new car. Rarely can you buy the car, but that's not the main idea.

Maintenance and insurance: Depends on the contract. Often maintenance and comprehensive insurance are included in the monthly payment – this is one of the main advantages of operating leases.

Tax aspects:

• For business – 100% of lease costs recognized as allowable deductions (with CO2 limitations from 2025)
• VAT deduction on lease payments
• The car does not burden the company's balance sheet

Typical terms in Lithuania 2026:

• Monthly payment: depends on car, typically 300–800 EUR
• Initial deposit: 0–10%
• Term: 24–48 months
• Mileage limit: 15,000–25,000 km per year
• Penalties for excess mileage: 0.05–0.15 EUR/km
• Penalties for damage: depending on condition

Consumer Loan for a Car

Essence: The bank lends you money, you buy the car. The car is yours immediately.

How it works:

• You receive a loan from a bank or credit union
• You buy the car – from any seller
• You repay the loan according to schedule

Ownership: The car is your property from day one. You can sell it, modify it, or do anything you want (though the loan agreement may impose certain restrictions).

Maintenance and insurance: Entirely your decision. Comprehensive insurance is not mandatory (though recommended for expensive cars).

Typical terms 2026:

• Interest rate: from 2.7% to 35%+ (heavily depends on credit history)
• AAPR: from 7.4%
• Initial deposit: not required
• Term: up to 84–96 months
• Amount: up to 50,000 EUR

Comparison Table

How hire purchase works in practice

Theory is one thing, but how does it look in real life? Let's walk through the entire process from start to finish.

Step 1: Choose your car

First, you need to decide what car you want. Leasing companies typically finance:

• New cars – from official dealerships
• Used cars – up to 10–15 years old (at the end of the contract, the car's age should not exceed 15 years)
• Minimum value – usually from 5,000–10,000 EUR

Important to know: some leasing companies only buy from businesses (dealerships), others allow purchases from private sellers too. It's worth clarifying this in advance.

Step 2: Apply for financing

You submit an application to the leasing company. You'll need:

• Personal document (passport or ID card)
• Income confirmation – certificate from employer or tax declaration (for self-employed)
• Car information – make, model, year, price, VIN code

Most companies make a decision within 1–2 business days. Some – even within a few hours.

Important: Before applying, check your credit history through Creditinfo. If you have unpaid debts or late payments – better to sort them out first.

Step 3: Pay the initial deposit

The initial deposit typically accounts for 10–20% of the car's value. For example:

• Car worth 20,000 EUR → initial deposit 2,000–4,000 EUR
• Car worth 30,000 EUR → initial deposit 3,000–6,000 EUR

The larger the initial deposit, the lower the monthly instalments and the less interest you'll pay over the entire period. However, don't spend all your savings – keep a financial "safety net".

Step 4: Pay monthly instalments

Each month you pay a fixed amount, which consists of:

• Capital portion – the portion of car value you're repaying
• Interest – the fee for using borrowed money

Interest in Lithuania is typically tied to EURIBOR (3-month EURIBOR at the beginning of 2026 – around 2.0%), plus the leasing company's margin (1.45–2.29%). This means your interest rate can change if EURIBOR fluctuates.

Example: If EURIBOR is 2.0% and the margin is 1.99%, your annual interest rate is around 3.99%.

Step 5: Contract end – residual value

This is perhaps the most important moment. At the end of the contract, you must pay the residual value – the remaining portion of the car's price that was not included in the monthly instalments.

Example with a 20,000 EUR car:

After paying the residual value (4,000 EUR), you become the car owner. If you don't have that amount at the time – most leasing companies allow you to refinance it (take out another lease just for that amount).

Hire Purchase for Business

For entrepreneurs and companies, hire purchase has special tax advantages. That's why most business cars in Lithuania are acquired through leasing.

VAT Deduction

If the car is used for business activities and you're a VAT payer, you can deduct VAT from:

• Initial deposit
• Monthly lease instalments
• Insurance and maintenance costs

Important caveat: If the car is also used for personal purposes, the VAT deduction is proportionally reduced. The tax authority recommends keeping a travel log or using a GPS tracking system to confirm business use.

Expense Deductions

Car depreciation and lease interest expenses are recognized as allowable deductions, but from 2025, deductible limits depend on the car's CO2 emissions:

This means that when buying an expensive, high-emission car, the company can only deduct part of its value. Electric and low-emission cars have a significant advantage here.

When is hire purchase worth it for business?

Worth it, when:

• You use the car long-term (5+ years) and want to own it
• The car's value matches or is below the deduction limits
• You have stable cash flow and can plan long-term payments
• You want predictable monthly costs

Better to choose operating lease, when:

• You want to change cars every 2–4 years
• You don't want to deal with reselling
• The car is expensive – operating lease doesn't burden the balance sheet
• Tax optimization matters (100% lease costs – allowable deductions)

For more on business car financing, see our business leasing guide.

Residual Value: What is it and Why Does it Matter?

Residual value (also called balloon payment) is the sum you'll pay at the end of the contract to become the car owner. It's set at the beginning of the contract and is usually expressed as a percentage of the car's value.

How residual value affects monthly instalments

The principle is simple: the higher the residual value, the lower the monthly instalments (because you're repaying a smaller portion of the car's price in monthly instalments). However, at the end, you're waiting for a larger one-time payment.

Example with a 25,000 EUR car (15% initial deposit, 60 months, 4% interest):

The difference is obvious: by choosing 35% residual value instead of 0%, you'll pay 134 EUR less each month, but at the end of the contract you'll need to pay 8,750 EUR.

How to choose the right residual value

High residual value (25–35%) is suitable if:

• You want lower monthly instalments
• You plan to have savings at the end of the contract or refinance
• The car holds value well (e.g., Toyota, Lexus)

Low residual value (0–15%) is suitable if:

• You want peace of mind – once you pay the last instalment, the car is yours with no additional payments
• You can afford higher monthly instalments
• The car depreciates quickly

Rule: The residual value should not exceed the actual car's market value at the end of the contract. Otherwise, it won't be worth it for you to buy it – it would be cheaper to just buy a similar car on the market.

To calculate different options, use our leasing calculator – it will let you experiment with different residual values and terms.

Balloon Payment

Residual value is sometimes called a "balloon payment". It's a one-time sum you pay at the very end of the contract. If you can't pay it, you have several options:

1. Refinance – take out a new loan or lease just for the residual value
2. Return the car – some companies allow you to simply return the car instead of paying the residual value
3. Switch to a new lease – you return the old car and immediately take out a new lease for a new car

Advantages and Disadvantages

Like any financial product, hire purchase has both strengths and weaknesses. Here's an objective assessment.

Advantages

1. Lower monthly instalments than buying with a loan

Due to the residual value mechanism, monthly instalments can be 20–30% lower than with a consumer loan. This lets you afford a better car for the same monthly budget.

2. Predictable expenses

You know exactly how much you'll pay each month (unless EURIBOR changes – but fluctuations are typically small, 10–30 EUR). This helps with household or business budget planning.

3. Newer cars

Due to more affordable monthly instalments, people can afford newer, safer, more fuel-efficient cars. This is especially relevant for families with children, where safety is a priority.

4. The car becomes your property

Unlike operating leases, at the end of the contract the car belongs to you. You can continue using it, sell it, or use it as a down payment on a new car.

5. Tax relief for business

For entrepreneurs – VAT deduction, expense deductions. This significantly reduces the actual cost of the car.

6. Ability to regularly update your car

At the end of the contract, you can easily move to a new model – return the old one, take out a new lease for a new car. You're always driving a fairly new car without large one-time expenses.

Disadvantages

1. Total cost is higher than paying in cash

Due to interest and administration fees, the total amount will always be higher than paying upfront. For a 20,000 EUR car over 4 years, you'll add ~1,000–2,000 EUR in interest.

2. Comprehensive insurance is mandatory

Leasing companies require comprehensive insurance (KASKO) for the entire contract period. Depending on the car, this can cost 400–1,500 EUR per year. It's a significant additional expense that must be factored into calculations.

For more on KASKO prices and how to save, see our comprehensive insurance guide.

3. The car is not yours until the end

While you're paying off the lease, you cannot sell the car, gift it, or transfer it without the leasing company's consent. This limits your freedom.

4. Sometimes mileage limits are imposed

Although financial leasing rarely has mileage limits, some companies do impose them. If you exceed the limit – additional charges apply.

5. Risk from EURIBOR fluctuations

Since interest is tied to EURIBOR, your monthly instalment can change. In 2022–2023, EURIBOR rose from 0% to 4%, and many people's instalments increased significantly. At the beginning of 2026, EURIBOR stabilized at ~2.0%, but the future is unpredictable.

6. Early termination penalties

If you want to terminate the contract early, you'll typically have to pay penalties or cover remaining interest. This can cost several hundred euros.

Calculation Examples

The best way to understand hire purchase is to calculate concrete examples. Here are three scenarios with real Lithuanian market conditions.

Example 1: Compact Car – 15,000 EUR

Situation: You're buying a 3-year-old Škoda Octavia for 15,000 EUR.

Total amount paid over 4 years:

• Initial deposit: 1,500 EUR
• 48 monthly instalments: 11,856 EUR
• Residual value: 3,000 EUR
• Total: ~16,356 EUR
• Overpayment (interest + admin): ~1,356 EUR

Comprehensive insurance: ~350–500 EUR/year → 1,400–2,000 EUR over 4 years

Actual total cost with insurance: ~17,756–18,356 EUR

Example 2: Family SUV – 25,000 EUR

Situation: You're buying a new Hyundai Tucson for 25,000 EUR.

Total amount paid over 5 years:

• Initial deposit: 3,750 EUR
• 60 monthly instalments: 15,720 EUR
• Residual value: 7,500 EUR
• Total: ~26,970 EUR
• Overpayment (interest + admin): ~1,970 EUR

Comprehensive insurance: ~600–900 EUR/year → 3,000–4,500 EUR over 5 years

Actual total cost with insurance: ~29,970–31,470 EUR

Notice that by choosing 30% residual value, the monthly instalment is only 262 EUR – quite affordable for most families. However, at the end of the contract you'll need to pay 7,500 EUR.

Example 3: Electric Vehicle – 40,000 EUR

Situation: You're buying a new Tesla Model 3 or BYD Seal for 40,000 EUR. Electric vehicles have more favorable leasing terms.

Total amount paid over 5 years:

• Initial deposit: 6,000 EUR
• 60 monthly instalments: 27,180 EUR
• Residual value: 10,000 EUR
• Total: ~43,180 EUR
• Overpayment (interest + admin): ~3,180 EUR

Additional electric vehicle advantages:

• Comprehensive insurance: ~700–1,000 EUR/year (similar to mid-range cars)
• Fuel costs: ~3–5 EUR/100 km (vs 8–12 EUR for diesel/petrol)
• Savings on fuel over 5 years (driving 15,000 km/month): ~3,750–7,500 EUR
• For business: maximum deductible value – 50,000 EUR (most favorable conditions)

Fuel savings often offset higher lease payments, so the actual cost of operating an electric vehicle can be similar to a cheaper petrol car.

Comparison: how much does each cost per month?

Calculations are approximate. You can calculate exact figures using our leasing calculator.

Who is hire purchase suitable for?

Hire purchase is not a universal solution. Here's who it's best suited for:

1. People who want to own a car

If it matters to you that the car will be yours at the end – hire purchase is the natural choice. Unlike operating leases, where you simply return the car, here you're investing in ownership.

2. Entrepreneurs and Companies

Tax relief makes hire purchase especially attractive for business. VAT deduction and expense deductions can reduce the actual car cost by 15–25%. This means a 25,000 EUR car can actually cost a business 19,000–21,000 EUR.

3. People with stable income

If you have regular income and can plan your budget several years ahead, fixed monthly instalments provide security and clarity.

4. Those wanting a newer car than they could buy in cash

If you have 5,000 EUR in savings, you can buy a 10–15-year-old car with repair risks. Or you can use those 5,000 EUR as a down payment and get a 3–5-year-old car through leasing with manufacturer's warranty. The second option is often smarter – especially if you value reliability and safety.

5. People who want to update their car regularly

Every 4–5 years you can "exchange" your car: return or sell the old one, take out a new lease for a new car. You're always driving a fairly recent car without large one-time expenses.

When is hire purchase NOT the best option?

• People with unstable income – fixed monthly payments can become a burden
• Those wanting a cheap used car – leasing companies rarely finance cars cheaper than 5,000 EUR
• Heavy drivers – if you drive 30,000+ km per year, some terms may be unfavorable
• Those wanting maximum freedom – while the lease is active, the car isn't formally yours

In these cases, a consumer loan or cash purchase is better. For more on all financing options and their comparison, see our car financing guide.

Frequently Asked Questions (FAQ)

Is hire purchase the same as financial leasing?

Yes, these are different names for the same thing. "Hire purchase" is the legal term, "financial leasing" is more commonly used in the market. The essence is the same: you "rent" a car with the right to buy it at the end of the contract.

How does hire purchase differ from operating lease?

Main differences:

• Ownership: Hire purchase – you become owner at the end. Operating lease – you return the car.
• Maintenance: Hire purchase – your responsibility. Operating lease – often included.
• Term: Hire purchase – longer terms (up to 7 years). Operating lease – shorter (2–4 years).
• Mileage limit: Hire purchase – usually none. Operating lease – always there.

Can I terminate a hire purchase contract early?

Yes, but it will cost you. You'll typically have to pay:

• Remaining financed amount (or part of it)
• Administration fee for early termination
• Sometimes – penalties

Specific terms depend on the contract. Always carefully read the contract terms before signing.

What happens if I can't pay the instalments?

If you can't pay, contact the leasing company as soon as possible. Options include:

• Payment deferment – some companies allow you to defer 1–3 months
• Contract restructuring – change terms (longer term, lower instalments)
• Return the car – in the worst case, you return the car, but you may still owe money if its value is less than the remaining lease balance

Don't hide from the leasing company – the sooner you contact them, the more solutions you'll find.

Do I need comprehensive insurance for the entire period?

Yes, comprehensive insurance (KASKO) is mandatory for the entire hire purchase period. This is the leasing company's requirement – since the car formally belongs to them, they want to ensure the asset is protected.

Can I choose any car?

Most leasing companies finance:

• New cars from dealerships – almost without restrictions
• Used cars – up to 10–15 years old, minimum value from 5,000–10,000 EUR
• Some companies allow purchases from private individuals, others – only from businesses

What are good interest rates?

In Lithuania in 2026, good car leasing rates are considered:

• Electric vehicles: 3.0–3.5% annual (margin + EURIBOR)
• New cars: 3.5–4.5% annual
• Used cars: 4.0–5.5% annual

If offered more than 6% – it's worth looking for alternatives. If less than 3.5% – that's an excellent offer.

Can I refinance the residual value?

Yes, many leasing companies offer the option to refinance the residual value – i.e., take out a new, smaller lease just for that amount. This allows you not to accumulate a large sum by the end of the contract.

How long does lease approval take?

Usually 1–2 business days. Some companies make decisions within hours if you have good credit history and provide all necessary documents.

Can I get a lease if I work as a freelancer or self-employed?

Yes, but terms may differ from salaried employees. Usually you'll need to provide:

• Income tax returns for 1–2 years
• Bank account statements
• Possibly a larger initial deposit (15–20% instead of 10%)

Can I sell the car while leasing?

No, you cannot sell the car while the lease is active without the leasing company's consent. The car is their property until the contract ends and you pay the residual value.

Summary

Hire purchase (financial leasing) is one of the smartest ways to buy a car if you want to:

• Own the car at the end of the contract
• Pay affordable monthly instalments
• Get tax relief (for business)
• Drive a newer and more reliable car

Key things to remember:

1. Hire purchase = financial leasing – these are the same. The car becomes yours at the end.
2. Operating lease – you return the car at the end. Suitable for those who want to change frequently.
3. Residual value – the higher it is, the lower the instalments, but the larger the sum at the end.
4. Comprehensive insurance – mandatory – this is an additional, but important expense.
5. For business – significant tax relief – VAT deduction and expense deductions.
6. Compare at least 3 offers – terms between providers can differ by hundreds of euros per month.

No matter which financing method you choose – what matters most is to carefully calculate all expenses (not just the monthly instalment, but also insurance, maintenance, fuel) and make sure it fits your budget.

Want to calculate your lease payments? Use our leasing calculator – it will let you quickly compare different options.

Looking for a car with financing? Check out our financing services – we'll help you find the best offer for you.

For more on car financing, see our comprehensive financing guide.

You might also find useful:

• 💰 Leasing Calculator – compare monthly instalments
• 🏆 Leasing vs Buying – Which is Better? – complete comparison
• 🔍 WHEELSTREET Financing – financing from 0% down payment
• 🚗 Cars for Business – hire purchase for companies
• 📚 VIN Check — Dictionary
• 📚 Leasing — Dictionary

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