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Business Contract Purchase (CP)
Contract Purchase offers the company accurate monthly budgeting and cash flow, minimal capital expenditure, ownership of the asset and fixed interest rate.
The difference between Contract Purchase and Contract Hire scheme is that there is a guaranteed option to buy the vehicle at the end of the contract by paying a ‘balloon payment’ (sometimes referred to as the GFMV or Guaranteed Future Minimum Value).
Contract Purchase is most advantageous for companies considering prestige vehicles, where the purchase price at the end of the contract may be less than the re-sale value of the vehicle, therefore enabling the company to re-coup some of the capital outlay of the contract.
- Fixed cost allowing easy budge management
- Low initial outlay (usually 3 payments in advance)
- The choice to buy, sell or trade in the vehicle at the end of the contract
- Efficient solution for businesses unable to reclaim VAT
- Interest charges claimable against tax
- Rentals allowable against tax
- No depreciation risk
- No responsibility for vehicle disposal if returning the vehicle
- Finance company carries the Residual Value Risk