Business Contract Purchase

Contract Purchase (CP) is a type of finance agreement for business customers looking to fund a new vehicle in a manageable way

Like other forms of leasing, Contract Purchase (CP) allows businesses to fund a new vehicle in a way that they can manage. CP is a type of finance agreement that businesses can enter for a single vehicle or multiple vehicles.

One difference between Business Contract Hire and Business Contract Purchase is that repayments aren’t subjected to VAT, but it is important to note that any service packages taken with the vehicle are subject to VAT.

 Advantages:

  • Fixed monthly payments
  • Maintenance and servicing can be included
  • Low initial payment
  • Cost effective
  • No depreciation concerns if you wish to walk away at the end
  • You may be able to refinance the OFP
  • Fixed OFP when you first take the contract out

 Disadvantages:

  • Like Contract Hire, fully comprehensive vehicle insurance is necessary
  • At the end of the contract you must make a decision whether you wish to return the vehicle, keep it or sell it.

More Information on Business Contract Purchase:

Contract Purchase is an ideal choice for businesses that would prefer options other than to hand the vehicle back at the end of their contractual agreement. In the same way as Contract Hire works, CP customers pay an initial rental at the beginning of the contract and pay fixed monthly repayments. The difference is that in the final stage there is an OFP or Optional Final Payment (typically called the GFV or Guaranteed Future Value too) at the end of the agreed period.

Aside from returning the vehicle to the funder at the end of your contract (bearing in mind that mileage allowances haven’t been exceeded and the vehicle condition is within the BVRLA’s ‘fair wear and tear’ guidelines to avoid any surplus charges), you can trade-in your current vehicle for another at a dealership. If a trade-in is your proposed move and the value given for your existing vehicle is greater than the OFP the dealership will use that difference towards the deposit or initial rental on your new vehicle. The last option here is to pay the Optional Final Payment and keep the vehicle. Most funders will also offer the chance to re-finance the OFP, allowing you greater financial leeway or manageability.

 

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