What is Contract Hire?
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) also available on a personal basis, see Personal Contract Hire. The products’ flexibility and fixed monthly cost makes it an ever popular choice.
The information below gives you a good idea of how the rentals are calculated and the benefits to you along with the 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 these need to be considered when thinking about which vehicle to lease. Our team are happy to discuss these in detail, we believe it important that you make an informed decision that is right for you, not us.
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 source and negotiate the price of the vehicles ensuring we achieve the most competitive prices, and don’t worry, we only buy from the manufactures franchised dealers.
Residual Value – The amount the funder believes the vehicle will be worth at the end of the contract term . They decide this based on how old the vehicle will be and how many miles it will have covered 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 the residual value will be less and as a consequence, 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. Ask us to play around with the term to find the best deal for you.
Maintained Contracts - You can choose to maintain the vehicle yourself or include maintenance in the package at an extra cost, this includes; servicing, mechanical repairs, tyre replacement and comprehensive breakdown cover. Ideal if you do not want any surprise bills and a fixed monthly cost!
The Key Benefits of Contract Hire
- The lender remains the owner of the vehicle, meaning it appears ‘off balance sheet’ think of it as 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, 6 or 9 months the normal monthly rental, this is 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 for it is not your problem (subject to the vehicle mileage not being over the contracted mileage and subject to there not being any damage over and above normal “Fair Wear & Tear”).
- VAT is generally 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 at a pence per mile rate as 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, but our funders work to a Fair Wear & Tear guide that shows what is and what isn't acceptable, please speak to our team should you wish to see a copy before agreeing to the terms.
- You will never own the vehicle.