What is Contract Purchase?
Contract Purchase works in a very similar way to Contract Hire. You pay fixed monthly Payments for a new vehicle of your choice over 12 to 60 months, there is an initial payment and then at the end of contract you have the option to buy the vehicle for the remaining value, or Guaranteed Minimum Future Value (GMFV). The GMFV is calculated at the start of the contract so you can accurately forecast the cost of purchase. If you decide not to buy the vehicle at the end of contract you simply hand it back with no extra charge.
Key points of Contract Purchase
- Contract lengths range from 12 to 60 months
- Allows for accurate budgeting over the term of hire
- For VAT registered businesses, 100% of the Maintenance VAT is reclaimable
- With Contract Purchase being classed as a purchase agreement you can take advantage of Capital Allowances
- The costs of maintenance, servicing and tyres over the period can be added on to your contract hire rentals
- This is covered for the duration of your agreement
- Vehicle is delivered to you and collected from you if you hand it back
- Appears on Balance Sheet
Things to consider with Contract Purchase
- If you go over your contracted mileage you will be faced with charges if you hand it back
- Vehicles handed back with damage will incur a charge for repairs (in accordance with BVRLA "Fair Wear & Tear" Standards)
- You do not own the vehicle until you pay the Optional Final Payment (OFP)