How Contract Purchase works
A Contract Purchase agreement enables you to pay the entire cost of a vehicle using fixed monthly payments, followed by a final lump sum. Contracts can also include additional items, such as a maintenance package.
Just like Contract Hire, Contract Purchase require you to choose a fixed contract term and mileage limit. There is an initial payment, which is followed by regular monthly payments calculated to cover the cost of the vehicle, minus the final balloon.
The agreement lays out the terms for taking full ownership at the end of the contract. This final payment is generally optional, but it must be paid if you wish to own the vehicle. As another option, you may be able to use the vehicle as a part exchange for a new one.
The monthly payments are not subject to VAT, however, you will need to pay the VAT charged on any maintenance element of the contract.
Things you need to know about Contract Purchase
If you are planning on taking ownership at the end of the agreement, then it is worth noting that the final balloon payment is non-negotiable. This could mean that you are paying far more than the current second-hand value of the vehicle. Of course, the final decision is yours and you generally have the option to hand the vehicle back. Provided you have stuck to the terms of the contract and there is no more than fair wear and tear, there should be nothing more to pay.
Is Contract Purchase right for me?
Contract Purchase is more popular than Hire Purchase, as the final balloon means that the monthly payments are much lower. Whether it is right for you often depends on your likelihood to purchase the vehicle at the end of the agreement.
