Business Contract Purchase
Contract Purchase (CP) gives you the flexibility to spread the cost of a new vehicle over a pre-determined period, after which you have the option to own the vehicle outright or return it to the leasing company.
Contract Purchase is an on-balance sheet method of funding. Simply choose your vehicles and the finance company will buy them. You then pay a fixed monthly sum for the duration of your agreed loan period. At the end of this term, you’ll have the option to purchase each vehicle by making a final ‘balloon’ payment based on its residual value. Alternatively, the finance company can buy the vehicle back at the “balloon” value and provided there is no excess mileage or damage to the vehicle there is nothing further to pay. Contract purchase agreements usually have the option to include maintenance giving you peace of mind that both finance and maintenance costs are fixed throughout the duration of the contract. The monthly payments are not subject to VAT, however if you do take out the optional service package then you will have to pay VAT on the service costs.
- Fixed price motoring, with similar residual value and maintenance risk protection as contract hire (if the vehicle is returned)
- Option to pay the end of contract balloon payment and own the vehicle outright, or return it to the leasing company at the end of the contract
- Ideal for commercial vehicles since VAT can be fully reclaimed up front based on the vehicle purchase price
- Suitable for company cars if your company is restricted in the amount of VAT it can reclaim or alternatively if there is no private use
- Low initial payment
- No depreciation concerns if you wish to walk away at the end
- Maintenance and servicing can be included
- You will have to make a decision at the end of the contract as to whether you wish to sell the vehicle, return it or keep it
- You must have fully comprehensive vehicle insurance
More Information on Business Contract Purchase:
- Enjoy predictable fleet costs that are easier to manage
- No residual value risk at the end of the vehicle term
- Ideal for commercial vehicles
- Suitable for company cars if your company is restricted in the amount of VAT it can reclaim
- No VAT recovery on company cars On balance sheet accounting treatment
- There are cost implications if you terminate your funding agreement early (although this applies to all forms of funding but may not be so transparent)
Each funding option is designed to cater for different, specific fleet needs. Although a simple concept in principle, fleet funding can be a minefield if you’re not properly prepared. With so many companies, deals and advice out there in the market, it’s easy to get confused about which option is best for your business. The type of funding you choose can make a significant difference to your overall costs, risk and flexibility – so it’s crucial to understand everything properly before making your decision. We can help you understand more about the impact of the various funding options available to you and can help identify the most appropriate funding method for your needs.
CP is ideal for any business that would like options at the end of its finance agreement. CP customers make an initial payment when they first take out the contract, then pay fixed monthly payments and finally have an Optional Final Payment (OFP) at the end at the end of the contract which is also referred to as the GFV (Guaranteed Future Value).
You can trade-in your vehicle and take another vehicle. If the trade-in value is larger than the OFP you will be able to use the difference towards a deposit on a new Vehicle. Or, you can simply return the vehicle to the funder, as long as you have not exceeded the mileage and the vehicle is in an appropriate condition for its age there will be no charge. Finally, you can keep the vehicle either by paying the OFP in full or you will find that most companies offer the opportunity to re-finance the OFP.