What is Contract Hire?
Contract Hire is probably the most common ‘car leasing’ product, in essence it is a long-term vehicle rental agreement, suitable for any business entity (sole trader, partnership and limited companies).Contract Hire is also available on a personal basis, see Personal Contract Hire. The products flexibility and fixed monthly cost makes it an ever popular choice.
Below gives you a good idea of how the rentals are calculated and the benefits and points to consider about this product.
What affects the Monthly Rental Price?
A number of factors come into play when calculating the monthly rental for you and need to be considered when thinking about what car to lease. The team here are happy to discuss these in detail, we believe it important you make an informed decision that is right for you.
Vehicle Purchase Price - This a big factor, the more expensive the vehicle generally the more you can expect your rental to be, although strong residual values can sometimes buck this trend, resulting in a nice surprise. We automatically source vehicles at the most competitive price and don’t worry, we only buy from the manufacturers franchised dealers.
Residual Value – The amount the funder believes they will sell the vehicle for once returned by you. They decide this based on how old the vehicle will be and how many miles will be on the clock at this point, they monitor previous sales of the vehicle closely which gives them a good idea of where to set it. The good news is - If they get it wrong and it sells for less than they had hoped to, it’s not your problem!
Mileage & Contract Length – The more miles you do, the more the value of the vehicle drops, so of course your rental will be higher. Contract Length can have a varying impact, normally the longer you have the vehicle the lower the rental but this is not always the case.
Maintained Contracts - You can choose to include the full maintenance package. This includes; servicing, mechanical repairs, tyre replacement and comprehensive breakdown cover. Ideal if you want a fixed monthly cost and no surprise bills!
The Key Benefits of Contract Hire
- The lender remains the owner of the vehicle, meaning it appears ‘off balance sheet’. Think of it is a running cost to your business and not a depreciating asset.
- Fixed Monthly Costs, making budgeting easier.
- Low Initial outlay, most contracts are based on an initial rental equivalent to a multiple of 3 or 6 times the normal monthly rental. You can have agreement based on straight payments, an example being on a 3 year contract you pay 36 equal rentals, this is normally subject to underwriting.
- Vehicle tax, RFL is included throughout the contract term.
- No disposal risk, the funder will collect the car and dispose of it, if they sell it for less than they’d hoped it is not your problem (subject to the vehicle mileage not being over the contracted mileage and not subject to any damage over and above “Fair Wear & Tear”).
- VAT is reclaimable at a rate of 50% on the finance rental and 100% on the maintenance element should you take this as part of your agreement.
Points to Consider
- Early Termination of the contract can be expensive.
- If you exceed your agreed mileage you will be charged a pence per mile at a rate agreed in your contract.
- You are responsible for insuring the vehicle on a fully comprehensive policy.
- You must return the vehicle in a well maintained condition. This is always a point of concern for customers, however our funders work to a Fair Wear & Tear guide that shows what is and what isn’t acceptable, please speak to the team should you want a copy before agreeing to the terms.
- You will never own the vehicle.