Contract purchase is, in many ways, pretty much the same as a hire purchase agreement. However, at the end of a contract purchase plan, as well as being able to hand the vehicle back to us, you also have the option to purchase and own the car too.
For the duration of your contract you’ll pay a set monthly fee as you would with a contract hire agreement, but during the final month of your contract you’ll also be given the option of paying a ‘balloon payment’, which you can choose to pay in order to take ownership of the vehicle.
The cost of the balloon payment is determined when you take out your contract so you’ll always know how much it’ll be and, if you wish to buy the vehicle at the end, you’ll be able to budget throughout your contract so that you can afford to pay off the balloon.
The balloon payment is based on the residual value of the car. This will be worked out after taking into account the depreciation of the car, along with its mileage limit. Remember, it’s important to be honest with the leasing company about your mileage otherwise, at the end of your contract, your balloon payment could actually cost far more than the car is worth. Of course, should you choose to hand the vehicle back at the end of your agreement and you’ve gone over your mileage limit, you’ll also be hit with a costly penalty*.
Advantages of contract purchase
– With a fixed price to pay every month it’s really easy to keep accurate financial records
– It’s a great way for businesses to constantly introduce new cars to their fleet as the old ones can simply be handed back at the end.
– If you decide you’re happy with your current fleet then you’ll have the option to purchase each vehicle as it comes to the end of its contract
– Our contract purchase deals come with huge savings on maintenance packages and relief vehicles. You’ll also receive full Dial Rescue breakdown cover
– Road fund licence is covered for the duration of your contract
– New cars are much more efficient, so your fleet running costs should be reduced
– As you’re not contractually obliged to purchase the car at the end, there’s no need to worry about depreciation or re-sale
– Because the deposit and monthly payments are generally lower on a contract purchase vehicle, that means that higher end models become much more affordable
Disadvantages of contract purchase
– Some businesses have a fleet policy which doesn’t allow the use of vehicles over a certain age. If this applies to your company, and you know you’ll be returning the vehicle at the end of the contract then you could find contract hire cheaper
– It’s important that the vehicle is maintained to the highest standard (servicing with manufacturer parts, new tyres etc.) especially if you intend to give the vehicle back at the end. Luckily though, we do offer great discounts on our maintenance packages for all business customers
– There will be a mileage limit imposed and this will affect the future value of the vehicle. If you go over the agreed mileage you’ll be charged for every mile over your contract limit
Who should choose contract purchase?
Contract purchase is perfect for any company that wants high value vehicles as part of its fleet because while you have the option to purchase, you’re also free of the depreciation risk.
*Pence per mile charges vary depending on the vehicle manufacturer. However, they will always be highlighted before you sign your contract.