What Is Outright Purchase?

Outright Purchase is simply buying a vehicle direct from the supplier without using finance.

The purchaser is then free to run the vehicle over any replacement cycle (or 'term') and sell the vehicle at any time.

Sometimes it may be possible to arrange with the vehicle supplier for a repurchase or sales agency agreement to dispose of the car at the end of it's replacement cycle.

Under a repurchase agreement the vehicle is returned to the supplier at a fixed price to guarantee the disposal value.

In a sales agency agreement the supplier agrees to dispose of the vehicle on behalf of the purchaser for a fixed payment or a commission, reducing the purchaser's administration and related costs of disposal.

Outright purchase avoids direct finance charges, but ties up cash reserves/savings ('capital') as the buyer will have paid the full purchase price of the vehicle around the time of taking delivery.

This results in a loss of use of capital and therefore a notional 'cost' to the purchaser in terms of the investment or savings income if the purchase price had been invested (known as the 'opportunity cost').

Ignoring costs that apply across all finance methods (such as fuel and insurance), the major direct costs involved in outright purchase are likely to be depreciation, Vehicle Excise Duty, and maintenance.

Advantages of Outright Purchase

Because the purchaser takes ownership of the vehicle the purchaser can profit from prudent management of the vehicle, such as achieving a better resale price than market value through proper vehicle care, maintenance and management over its life.

Vehicles can be sold at any time (e.g. when a driver's personal circumstances change) without a specific financial penalty (leasing companies usually charge an early termination fee for disposing of leased/hired vehicles before the full term), though the depreciation cost is typically proportionately higher when a vehicle is sold in the early years after purchase from new.

Disadvantages of Outright Purchase

The purchaser is exposed to fluctuations in residual values and maintenance costs, in particular if used vehicle prices drop.

Money is tied up in the value of the car and the purchaser can't get any of this back without either selling the car or pledging it as security for a loan.

Lease or Buy?

To see the cost impact of leasing or buying your next new car click here.

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(+44 1792 224319 outside UK)