Common questions and answers.
If you’re considering buying a new car for yourself or your company, you are spoilt for choice by the various finance options available. However, one of the most consistently popular choices is contract hire – because it often proves the most cost-effective and the easiest to manage.
So how do contract hire agreements work? This guide to contract hire will explain.
Whenever you hear the term ‘car leasing’, chances are that it is referring to contract hire as it is the most common form of vehicle leasing agreement.
Basically, contract hire means agreeing to take control of a car for a fixed period – it’s yours to drive but it is never actually yours to own. Instead you reach an agreement with the leasing company to make fixed payments (usually monthly) for the duration of the contractual period. At the end of the contract you return the car to the contract hire company.
Your contract hire payments will be determined by a number of factors. Firstly, there is the retail price of the car – that is the price you would have to pay if you were to buy it outright. Then, there is the residual value of the car – that is its estimated worth at the end of the contract taking into account depreciation, mileage, and condition. You then pay the difference between the two figures in monthly instalments. So, the higher the residual value of the car, the lower your payments will be.
Many of the advantages and disadvantages of contract hire are a matter of perception – i.e. what’s right for one driver might be wrong for another, and vice-versa.
For example, by taking out a contract hire agreement you never take ownership of the car. That may be a problem for some, but an advantage for others who like the idea of being able to return the car and walk away without dealing with selling or trading the car for another one. Some contract hire agreements also include maintenance packages – meaning all you have to worry about is comprehensive car insurance, tyres, and putting fuel in the tank.
Contract hire offers the advantage of fixing many of your motoring costs – you know exactly what you will have to pay and when you have to pay it, helping you to budget. This also makes contract hire popular among VAT registered companies who can reclaim 50% of the total payments made and 100% of the maintenance package costs. Hire rental tax allowances can also be applied.
On the downside, you must return the car at the end of the contract – there is no option to buy as there is with a personal contract purchase (PCP) agreement.
Think about your motoring habits before deciding if contract hire is right for you. If you travel a lot, then your mileage will be high which will increase the car’s depreciation and therefore your monthly payments. If you have a flexible job and have to travel varied distances, it can also be difficult to estimate your mileage – and if you exceed your mileage limit, you’ll face additional charges.
However, if you want to be able to budget with fixed monthly costs, like the idea of not having to sell the car on and want to drive a new vehicle every few years, then contract hire is ideal.
It is also perfect for businesses as it allows them to update fleets regularly with the latest vehicles, avoid large down-payments and adjust fleet size based on staff numbers.
If you think contract hire is the right form of car finance for you, give us a call or checkout the deal listings at ContractHireandLeasing.com to compare over a hundred thousand contract hire deals across all makes and models.
It’s no coincidence that leasing a car for business purposes has become increasingly common in the UK as more and more financially savvy motorist wakeup to the advantages.
While some are turned off immediately at the prospect paying for something they will never actually own, they also overlook how cars can quickly depreciate and rapidly plummet in value.
The fact that a new car sees thousands of pounds hacked from its value the moment it rolls off the forecourt should be enough to instill a life of leasing into any motorist, but drivers who lease cars direct enjoy more benefits than merely offloading the worry of selling their vehicle a few years down the line.
Apart from not being lumbered with any crippling up-front costs or capital outlay, one of major plus-points of business car leasing is that you are able to pull-off in a vehicle that would typically sit outside of your price range if you were to buy it outright.
Monthly repayments are still part of the package but when compared to repayments on a car loan, these can be up to 55% cheaper. Also, in the majority of lease agreements, only a small deposit is necessary, usually amounting to three monthly payments.
The car manufacturer warranty will normally cover the period of the lease and maintenance costs can also be covered. Road tax is also usually included in the lease agreement.
There are further financial incentives in that by driving a brand-new car, every two to four years, you’ll enjoy better fuel economy and performance advancements found on newer models, not to mention greater safety. All in all, it makes attractive business sense.
If you are familiar with the idea of any form of leasing, then it’s a very similar process. The key for any business car driver is to thoroughly research the market and decide upon a shortlist of makes and models of interest. Once satisfied with this shortlist, use a website such as ContractHireAndLeasing.com to check the latest leasing deals and once a satisfactory deal has been found contact the advertiser.
Signing a leasing contract obliges you to make regular payments over a period of time, let’s say 24 months. Business Car Leasing deals are typically either 12, 24, 36, or 48 month long.
At the end of the term you simply return the vehicle to the car leasing company and that’s it. In some cases, you may be given the option to buy the car or you could swap it for a newer model. Alternatively, there’s nothing stopping you from simply walking away.
Few purchases depreciate at the speed of a new car. As the theory goes, the car loses value as soon as you drive it off the dealer’s forecourt. However, there are ways to eliminate the negative effects of depreciation– and personal contract hire is top of the list. Personal contract hire is both cost-effective and easy to manage.
This guide to personal contract hire will explain how it works and who it’s right for.
There are many advantages to personal contract hire including:
Fixed prices– You can lease both new and used cars at a fixed monthly price and not have to worry about interest charges. This can help you budget.
Low initial payment– Typically, three monthly payments.
Cost effective– The monthly installments for a personal contract hire agreement will generally be lower than those of a personal loan.
Vehicle Exercise Duty (road tax) – This will be included for the duration of the agreement.
Optional maintenance packages– Personal contract hire deals can include maintenance packages, so you don’t have to worry about the general upkeep of the vehicle.
No depreciation concerns– You don’t have to sell the car at the end of the term, so you don’t have to worry its depreciation.
Access to more ‘upmarket vehicles’– With a personal contract hire deal, you could afford a car that would otherwise be too expensive.
As luxury cars tend to depreciate at the slowest rates, these often provide the best personal contract hire deals.
There are disadvantages to personal contract hire too, but generally these are based on perception:
Comprehensive car insurance– You will not be able to take out third party car insurance, you’ll need a comprehensive deal as the car is not yours.
You never own the vehicle.
Fair wear and tear policy will apply, along with a mileage limit.
No option to buy– Unlike a personal contract purchase agreement, there is no opportunity to buy the vehicle at the end of the contract.
Any change to the VAT rate will be reflected in the monthly price.
The advantages of car leasing may now be recognized by general consumers, but it was company vehicle leasing that began the explosion of interest in leasing deals.
There are many incentives for company vehicle leasing. By buying a fleet of vehicles outright, you are forced to make a large cash payout and take on ownerships of cars that may not hold their value over a prolonged period of time. With company vehicle leasing, you can spread the payments into more manageable monthly sums, knowing that you can return the car at the end of the contractual period and upgrade with a new company vehicle lease if necessary.
This is particularly useful for business that have a high turnover of staff or flexible workloads. By taking out a short-term company vehicle leasing agreement you guarantee that you have the vehicles when you need them– and you are not left with unwanted cars once this period ends.
One of the most important elements of company vehicle leasing is the mileage limit for each car you lease. Bear in mind that residual values will be calculated based on the mileage limit you agree with the leasing company at the start of the contractual period. It is important to accurately estimate this mileage. If you drive over the limit, you could be fine– but if you drive significantly under the limit, you could be paying too much on your monthly payments.
The key to company vehicle leasing is flexibility. If you’re starting a new business, you avoid making a large downpayment, you know your monthly payments will be lower than with purchasing options and due to lower expenses, you can potentially afford cars that were previously out of reach. You could offer a stronger image of your business by leasing a company vehicle that would not be affordable if you were to buy outright.
Monthly payments tend to be lower for car leasing than other types of finance. With tax and warranty also included in the deals, it’s great value for money.
Leasing a new car means you’re covered by the manufacturer warranty and road tax is already paid for. It’s easy to understand and complete, with no hidden terms or fees.
Home delivery on lease cars is free, and all cars are delivered by the manufacturers’ main dealer network for extra peace of mind.
The rate you are offered will depend on your individual circumstances.
All loans are subject to status. The interest rate offered will vary depending on our assessment of your financial circumstances and your chosen loan amount.
5.5% APR Representative based on a loan of £10,000
repayable over 60 months at an interest rate of 5.5% pa (fixed).
Monthly repayment of £190.39. Total amount payable £11,423.40.
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