Structurally similar to Contract Hire, Contract Purchase enables customers to make fixed monthly payments. However, with Contract Purchase the customer has the option of retaining the vehicle at the end of the contract.
A guaranteed residual value, which enables lower monthly payments, is set by the funder at the start of the contract, which gives the customer two options by the end:
- Hand the vehicle back to the funder.
- Keep the vehicle by paying the outstanding residual value and using any equity as a deposit for the next vehicle.
Key customer benefits:
- The option to retain the vehicle at the end of the contract – without any depreciation risks
- Choosing vehicles with CO2 emissions below 160gm2 will, from April 2009, result in 20% more in capital allowances than other vehicles, and 10% for those above 160gm2
- Road Fund Licence is provided for the full term of the contract
- The convenience of a full maintenance service, at a fixed monthly cost, is optional.
Contract Purchase is ideal for companies that utilise high value cars and want funding flexibility along with the opportunity to own the vehicle without the residual risk
What is Contract Purchase?
Contract Purchase is a hire purchase agreement provided by the funder which can be regulated by the Consumer Credit Act 1974.
As an alternative to Contract Hire, this product is ideal for companies who would like a high value vehicle and have the option to purchase the vehicle at the end of the contract but do not want any depreciation risks.
Contract Purchase offers the Customer many of the ‘no risk’ advantages of Contract Hire. This is also coupled with an optional service and maintenance package. It also allows the Customer to purchase the vehicle at the end of the agreement for a guaranteed price.
Road Fund License is provided for the full term of the contract.
The vehicle is registered in the Lessor’s name.
How does it work?
What happens at end of the contract?
At the start of the agreement the funder sets the final payment under the contract. This gives the customer a number of options at the end of the contract
- Hand the vehicle back to the funder - Any excess mileage, damage on the vehicle or missing service history, keys etc will be charged as detailed in the BVRLA ‘Fair Wear & Tear Guides’ which can be found on this website.
- The customer may choose to pay the option to purchase fee and the final rental - PVS will transfer ownership of the vehicle to the customer. The customer may then keep the vehicle or sell it for use as a deposit for their new vehicle.
- Re-Finance the final rental if applicable subject to credit (Regulated) - 28 days notice is required prior to contract expiry date. Intermediary can request a quote 90 days prior to contract expiry day allowing sufficient time for the customer to commit to a re-finance agreement.
- Keep the vehicle for a further 12 months once contract expires and pay the rentals based on sliding scale of the balloon amount. (Un-Regulated) Vehicle is not returnable once this informal period commences.
What are the financial benefits?
(a) VAT Recoverability
The payments for depreciation and interest are NOT subject to VAT, whereas payments for services bear VAT in the usual way.
(b) Tax Allowances
Contract Purchase arrangements are treated for tax purposes as a purchase by the customer when the vehicle is brought into use. As a result the 25% writing down allowance is claimed by the customer (maximum £3000 pa.)