Contract purchase is a finance agreement for VAT registered companies and businesses that want to own their vehicles but want to avoid the risk of depreciating assets.
So how does it work? A company chooses a brand new vehicle, pays an initial deposit and then continues to pay for the car or van in fixed monthly instalments. With a contract purchase agreement, the monthly finance payments are not subject to VAT. At the end of the contract, the company has the option to purchase the vehicle at an agreed price.
NB: Nationwide Vehicle Contracts are specialists in Contract Hire and Personal Contract Hire agreements. While Business Contract Purchase agreements are no longer available with Nationwide Vehicle Contracts, it is important that you review the benefits and exclusions of every lease contract to better understand which agreement is best suited to your needs.
If your company leases a vehicle on a contract purchase basis, you will pay for the vehicle in monthly instalments for a contract of 24 or 48 months, for example.
At the end of the contract, the company or driver can then purchase the car for a predetermined amount – known as a balloon payment – as long as the terms of the initial agreement have been met.
Contract purchase is ideal for businesses that like to run high value vehicles and don’t want to have to worry about the risk of depreciation.
If yours is a VAT registered company, you will not have to pay VAT on the monthly finance payments. It’s worth noting, however, that if you take out an optional service or maintenance package, VAT is payable on the service costs.
Contract purchase has a counterpart that is available for private customers, known as personal contract purchase (or PCP). To find out more about this, click here.
For a brief but clear overview of PCP and contract purchase, watch the video below.
It is worth noting that other types of business leasing contracts – such as contract hire and finance lease – are often more popular and common than contract purchase. This is because they offer more flexibility at the end of contract term than a contract purchase agreement.
If you’ve got further questions about which type of lease contract is best for you and your business, take a look at the information we’ve provided on each of the different contracts. Alternatively, give our team a call on 0345 811 9595.
At the end of the agreement, customers don’t have to purchase the vehicle – it’s just one of the options available. At the end of a business contract purchase agreement, there are three options:
Nationwide Vehicle Contracts has a huge range of brand new cars and vans available to lease.