What Is Business Contract Purchase?
Business Contract Purchase is a long-term rental purchase agreement.
An initial deposit is made, which is then followed by fixed, monthly payments.
Once the agreement ends, if you wish to purchase the vehicle, a final ‘balloon’ payment is made, which covers the full remaining value of the vehicle or van.
With this type of finance, you’re essentially paying off the depreciation amount for the vehicle, along with interest calculated on the vehicle’s total value. This will also consist of the guaranteed future value (GFV) of the vehicle, which is agreed at the beginning of the contract).
When the agreement comes to an end, you can:
Is Contract Purchase For Me?
Contract purchase is ideally suited to businesses looking for a lower initial financial outlay, known fixed monthly payments, and the option to buy the vehicle at the end of the contract, or if you are restricted in the amount of VAT you can reclaim.
Benefits
- You can purchase the vehicle at the end of the agreement
- Often, a much smaller deposit/initial payment is needed compared with other products and payments are often lower
- Monthly instalments are not subject to VAT (but it is payable on maintenance packages)
- Knowing your set monthly payments can help you budget better
- If at the end of the contract if the vehicle is worth more than the GFV you can keep the profit or put it towards a subsequent vehicle
Things To Bear In Mind
- Interest is payable on the entire value of the vehicle, even if you don’t opt to purchase at the end
- If the option to buy is taken, you must pay the stated GFV amount that is agreed at the start of the agreement
- You must properly insure, maintain and be in possession of the vehicle until the full value is paid off
- Annual mileage should be estimated in advance and will incur charges if exceeded
- If you wish to settle early, the difference between what the vehicle is worth at that time and what remains outstanding must be paid (which could be a negative amount). This could create negative equity, especially if the lease is terminated within the first 3 years)
