Contract Purchase

Contract Purchase (BCP/PCP)

Contract Purchase is essential Hire Purchase but with a final payment (balloon) at the end of the agreement. This makes this a very popular finance option due to its flexibilty. With Contract Purchase you pay a set monthly fee for an agreed period of time at which point you then have 3 options:

  • Re-finance or pay off the final payment if you want to keep the asset
  • Trade in or Part Exchange the asset against a new asset
  • Hand the asset back to the finance company (subject to restrictions)

Benefits of Contract Purchase

  • You have the option to own the asset at the end of the agreement
  • The final payment is agreed at the start of the agreement, therefore eliminating market influences
  • The monthly payments are affordable due to the balloon
  • The car can be depreciated in a companies accounts which enables tax effieciencies
  • You can hand the asset back at the end of the agreement
  • If the asset is worth more that the final value at the end of the agreement, the difference is yours to keep

Potential Risks

  • If the agreement is taken out on a vehicle, you are responsible for taxing the vehicle every year
  • In most cases the monthly payments are slightly higher than Contract Hire
  • You are still subject to certain conditions and restrictions, especially if you plan on handing the asset back at the end of the agreement

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