Contract hire or vehicle leasing may not be enough for some businesses, with a few preferring to own the vehicle themselves; however, purchasing vehicles outright may take up too much capital, particularly for small and medium enterprises. To resolve this problem, many vehicle leasing providers offer contract purchase as an alternative to contract hire and hire purchase.
What is contract purchase?
Simply put, contract purchase allows the customer to use the vehicle like in contract hire except they can choose to purchase the vehicle through a final balloon payment, after the contract is over. The following information lists the options available to the customer, after the contract is finished:
- Full ownership of the vehicle after making a final payment.
- If they don’t have the funds, they can extend the contract and spread the final payment over a further period, which is usually a year.
- Return the vehicle if they choose not to make the final payment; however, the customer may be liable for any excess mileage and vehicle damage, barring normal wear and tear.
- After purchasing the vehicle, it can be sold but the leftover equity can be used as a deposit to pay for another vehicle.
Contract purchase benefits
- Low initial down payment as high as 1-6 months’ worth. This is a great way to obtain higher-end vehicles if other forms of financing aren’t possible.
- Flexible payment terms from 24 to 48 months.
- Fixed monthly payments mean customers can easily track their expenses without worrying about costs rising in the future.
- For an additional fee, customers can choose to include optional services like maintenance and repairs in the contract.
- Through contract hire, you can reduce VAT payments because depreciation and interest is not covered by VAT.
- Know the future value of the vehicle in advance since it’s already part of the monthly payment.
You can find out more about ALD’s contract purchase and other funding solutions on this page.