Contract purchase is a type of finance agreement which is used mainly for the acquisition of vehicles. Businesses opt for this as they get control at the end of the agreement by choosing whether to buy or return the vehicles. And with flexible terms and fixed monthly payments, it could be the right choice for your business. So, how does it all work?
What is contract purchase?
It is a finance agreement for businesses that would like flexibility over deciding whether to keep or return their vehicles at the end of their agreement. A business contract purchase agreement is typically used by companies who wish to use high value vehicles for business purposes, and would like to have the option of owning the vehicles at the end of the contract.
How does contract purchase work?
The company will choose a new vehicle or vehicles and pays a deposit for it up front. The company will then continue to pay the asset finance company a fixed rate each month. At the end of the agreement you then have the option of buying the vehicle outright at a pre-determined amount.
The finance element of the rental payments is not subject to VAT, which is beneficial to organisations that are unable to recover VAT.
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What are the benefits of contract purchase?
Fixed monthly payments – helping you to budget accurately
Flexible terms – a choice of agreement terms and mileage allowance
Maintenance options – additional services depending on your agreement
Fixed final value – a fixed purchase final cost when your contract ends
Full ownership – the option of owning the asset at the end of the contract
Why choose contract purchase?
This type of agreement can work particularly well for businesses which need to regularly update their fleets, without carrying the risk of the vehicles depreciating significantly in value.
The option of owning the vehicle at the end of the business contract purchase with a fixed balloon payment could be an attractive option depending on your needs. There is, however, the option of re-financing a new vehicle at the end of the contract with some asset finance companies. The flexibility of a contract purchase agreement can work considerably in your favour.
Are you considering contract purchase cars for your business? Or do you require funding for other business assets? Maxxia can help you iron out the details – contact us today for more information.