Contract purchase
What is it?
Contract purchase means you agree to buy a van with monthly instalments. Van ownership will either be yours at the beginning of the contract or yours at the end of the contract (depending on whether a conditional sale or credit sale agreement is used).
If the contract purchase is a credit sale agreement, you own the van at the outset. Having gained title to the vehicle, you can either keep it, sell it directly, commission the leasing company to sell it on your behalf or sell the van back to the leasing company for a sum agreed at the contract’s inception (called a ‘guaranteed buy back’ or ‘guaranteed future value’).
The latter option is useful if you prefer not to take the risk on future values.
If the contract purchase is a conditional sale agreement, you will only own the van at the end of the contract following a final balloon payment.
Benefits
- Fixed monthly payments – so you know what to budget
- Purchase may be Corporation Tax deductible through capital allowances
- Interest on the monthly lease payments usually Corporation Tax deductible
- You’ll benefit when residual values are high
Drawbacks
- Lower residual values mean you’ll lose out
- Outstanding instalments appear as a liability on the balance sheet
- Vehicles appear on the balance sheet
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