What is vehicle contract purchasing?
Vehicle contract purchasing is a form of vehicle funding for VAT registered companies that want to own their vehicles whilst avoiding the risk of depreciating assets.
How does contract purchase work?
You choose your new vehicle, pay the initial deposit and then continue to pay for the vehicle in fixed monthly instalments for the duration of the contract. With a contract purchase agreement, the monthly finance payments are not subject to VAT. At the end of the contract, you (the company or the driver) have the option to purchase the vehicle at a pre-agreed price. Alternatively, Agility Fleet can buy the vehicle back at the balloon value and remove any risk on the residual value.
Vehicle contract purchasing is ideal for businesses running high value vehicles that don’t want to have to worry about the risk of depreciation.
What are the pros and cons of vehicle contract purchasing?
There are a number of benefits to funding your vehicles through contract purchase, including:
- Monthly rental payments are not subject to VAT
- You benefit from our purchasing power and industry experience giving you lower monthly rentals and an efficient fleet of vehicles
- On balance sheet funding, whilst removing the uncertainty of residual value fluctuations
- Improved cash flow – fixed cost budgeting with low initial outlay followed by fixed monthly payments and a final optional ‘balloon’ payment
- You can benefit from outsourcing the maintenance and disposal risk to Agility Fleet
There are disadvantages to vehicle contract purchasing too, some of which include:
- Over-mileage charges – At the start of a contract purchase deal, you will be asked to specify how far you will drive the car each year. This is so that we can accurately assess the value of the car at the end of the deal to set the balloon payment. If you go over the agreed mileage you will be charged a pre-agreed pence-per-mile for any excess miles recorded on the vehicle
- Damage charges – Just like when you rent a car, we will check it for damage when you hand it back. Normal wear and tear is acceptable, but the car needs to be in a saleable condition, which means you will likely be asked to pay to put right any large scratches or dents in the bodywork