Business contract purchase is a manageable way for business customers to fund a new vehicle. VAT registered companies can own a vehicle and avoid the risk of depreciating assets.
How does it work?
Contract Purchase is similar to Contract Hire in that your business will pay an initial rental and monthly payments for a set period of time. The difference between contract hire and contract purchase is the Balloon payment and what happens at the end of the contract. You have 3 choices:
- Buy the vehicle for a predetermined value (Balloon)
- Hand the vehicle back (Subject to mileage and condition)
- Part exchange the vehicle and use any equity to towards the deposit of your next vehicle
The Guaranteed Future Value (guaranteed future value, sometimes known as the balloon payment) of the vehicle is agreed at the start of the contract. If the payment is made at the end of the contract, then ownership will pass to you the customer.
- Fixed monthly payments
- The purchase price is agreed at the beginning of the contract, therefore if you wish to purchase the vehicle you can budget for this.
- The vehicle can be depreciated into the business accounts
- The company can offset the interest charges against corporation tax
- The Company’s balance sheet can be helped as this is an asset to the business.
- The monthly payments have a tendency to be higher than on a contract hire
- The interest rate can sometimes be higher than a hire purchase
- The whole cost of the vehicle is shown on your credit file You are still subject to mileage and condition restrictions https://www.bvrla.co.uk/service/fair-wear-and-tear-guide for the term of the contract
- You are responsible for taxing & servicing the vehicle
- Vehicle must be insured on fully comprehensive basis for term of contract.
What happens at the end of the contract?
- Hand the vehicle back to the finance Provider/Leasing company
- Pay the balloon payment and then you own the vehicle, you may be able to refinance the balloon payment. This means that you can pay the balloon payments in monthly instalments and then once you reach the end of the payments you will own the vehicle.
Applied Leasing Ltd can assist in sourcing any make or model for your next vehicle.
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