Business Contract Purchase

What is Business Contract Purchase?

Business Contract Purchase

Business Contract purchase is similar to a contract hire in the sense that your business will pay monthly payments for a set period of time.

The difference between contract hire and contract purchase is what happens at the end! At the end of a contract purchase contract you have two options;

  • Buy the car for a pre-agreed amount
  • Hand the car back (Subject to mileage and condition) 

Benefits of Business Contract Purchase:

  • It's flexible
  • The purchase price is pre-agreed at the beginning of the contract, so should you want to buy the car, you can budget accordingly
  • The car can be depreciated into the business accounts
  • It is an asset to the business, which will help towards a company's balance sheet
  • Road fund licence is included
  • Option for fully maintained contract

Disadvantages of Business Contract Purchase:

  • If you do not take a maintained contract you’re still subject to mileage and vehicle condition payments (fair wear and tear), especially if you’re planning on handing the car back.
  • The monthly payments tend to be more expensive than if you choose Contract Hire

What’s included in the lease?

Your agreed monthly contract rental covers the cost of use of the vehicle, your road fund licence, or RFL, is also included in the cost of the lease. If you have opted for a funder-maintained lease, the costs of all routine servicing & maintenance, as well as tyre replacement is also included in the cost of the lease. If you have opted for a customer- maintained contract, you will also be financially responsible for all routine servicing & maintenance costs, as well as tyre replacement. Insurance is not included in the cost of the lease, although there is an insured product available in the market.

What’s the role of a broker in all this?
Many businesses will utilise the services of a broker when searching for a new vehicle & contract. A broker may have access to multiple leasing companies special offers and rates and should be able to offer you the most competitive contract hire rates available, these are often better terms than an individual business is able to access directly with manufacturers or dealers.
The broker will be able to offer you quotes on every make & model and be able to assist you in finding the most suitable vehicle and funding method for your business.
The broker will take you through the funding process and arrange the credit required to purchase the vehicle, They will also source the vehicle with the best discounts available and guide you through the process from quote to delivery stage.
Once the vehicle has been delivered, most brokers will also assist with any mid-term contract requirements, and help with end of contract needs, such as returning vehicles or arranging extensions.

Alternative products in the marketplace:

Finance Lease – Popular for financing commercial vehicles in particular, Finance Lease offers the flexibility of financing the total cost of the vehicle over the term of the lease, or arranging with  a final balloon payment at the end of the agreement, which lowers the monthly cost for the term of the lease. The “balloon payment” is based on the anticipated resale value of the vehicle at the end of the lease. The vehicle remains the property of the finance company for the duration of the lease, you hire the vehicle for the agreed term. At the end of the term, you have the option to either sell the vehicle to an unrelated third party or pay the balloon payment and continue to operate the vehicle under a peppercorn agreement. Typically, a Finance Lease will be funded between 2-5 years.

Lease Purchase – This is a conditional sale agreement where you own the vehicle at the end of the agreement, but the regular monthly costs are structured like a standard leasing agreement. As with Finance Lease, you can choose to pay the total costs of the vehicle over the duration of the agreement or reduce the monthly costs by having an agreement with a final “balloon payment”. If you choose a payment profile with a balloon payment, you have to pay this at the end of the agreement and there is no option to return the vehicle to the funder, you must take ownership. The lender will retain ownership of the vehicle until the final payment has been made. Typically, a Lease Purchase will be funded between 2-5 years.

Business Contract Hire – A method of financing new vehicles where, you are renting the vehicle for a fixed term & with certain contracted criteria, such as annual mileage. This method of financing is popular with drivers that like to upgrade their vehicles every few years and value the benefits of fixed monthly motoring costs. It also avoids the hefty financial commitment of purchasing vehicles and helps with maintaining an efficient and cost-effective business fleet. The amount of the monthly rental is calculated by the length of the contract, the annual mileage, and the anticipated residual value at the end of the agreement.

Hire Purchase – This is a funding method used to buy a new or used vehicle. You would normally expect to pay a deposit and thereafter the value of the vehicle in full in equal monthly instalments, for the duration of the agreed loan period. The lender will retain ownership of the vehicle until the final payment has been made.
There is no option to return the vehicle during or at the end of the agreement and payment of the vehicle has to be made in full by the end of the agreement.