Contract Hire Advice and Information

What is Contract Hire?
 

In short Contract Hire is simply the most common and widely recognised form of vehicle leasing.

In a contract hire agreement you take full control of the vehicle for a period agreed with the person or company that you are hiring the vehicle from. The vehicle is yours to drive whenever you like but you never actually take ownership of the vehicle.

Normally the supplier of the vehicle is a company that specialise in Contract Hire agreements. You will agree to take the vehicle over a fixed period and pay regular payments for the privilege. These payments are normally made monthly by standing order or direct debit and once you have made the final payment for the pre-agreed term you simply give the vehicle back to the contract hire company.

Under normal circumstances the agreed payments are calculated using a number of factors. Primarily the initial price of the vehicle is considered, in other words the price that you would have to pay to own the vehicle outright. The second factor used by the contact hire company is the residual value, which is the estimated value of the vehicle at the end of the term of your agreement; taking into consideration factors such as depreciation, mileage, condition and history i.e. previously attained resale values for similar vehicles. Note that all contract hire agreements will stipulate how many miles you can use the vehicle for annual or collectively over the duration of the contract and you will be penalised for exceeding the agreed level.

Your contract will then be calculated on the difference between the starting value (the initial price) and the end value (the value after the above factors have been considered). Although not an exact science your contract will normally be calculated on the difference between the two figures and paid in instalments. So the higher the residual value of the car, the lower your payments will be.

Why Contract Hire?
 

To some people the thought of making payments for a vehicle and never actually owning it is ridiculous. For others however the concept is sheer bliss! In particular for companies that are registered for VAT (Value Added Tax), because they can claim half of the total payments made and all of the VAT paid on maintenance fees. In addition to VAT, hire rental tax should also be reclaimable.

To those who like the thought of ‘pay as you go’ or ‘fixed cost’ motoring the contract hire is the perfect solution, because you never actually own the vehicle and so you just give it back after the term. The contract hire company then have to hope that they have got their calculations correct and can sell the vehicle on to realise a profit; quite often they get it very right as you might imagine!

Frequently, contract hire companies also offer maintenance deals ensuring that the only requirement from you is comprehensive insurance and fuel. Perhaps the only real negative is the fact that there is no option to purchase the vehicle at the end of the agreement, an option that is only available with a personal contract purchase agreement.

Who is contract hire appropriate for?

If you can answer yes to the following questions then chances are Contract Hire is for you:

1. Are you are a motorist or a company that knows how many miles you can expect to use your vehicle for annually, and is that figure is below 20,000 miles per year?
2. Do you prefer to budget you motoring costs?
3. Do you prefer to avoid the issues of maintenance, warranty and resale?
4. Does a new vehicle every two or three years sound appealing?

If you answer yes to the following two questions also, then you really need to act now and contract hire

1. Are you registered for VAT?
2. Are you a business that wants to expand your vehicle fleet without full capital outgoings?

To get the answers to many frequently asked questions about Contract Hire please visit ContractHire.com

Copyright 2009

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