Contract Hire Explained

A Contract Hire is an agreement whereby an individual is loaned a vehicle from a car leasing company for a set amount of time. At the end of the agreement, the car is returned to the leasing company. Monthly repayments are required to cover the initial purchase value of the vehicle and the depreciation of the vehicle throughout the agreement.

How Does It Work?

Before the Contract Hire agreement starts you'll need to agree an annual mileage limit with the car leasing company. The total number of miles that a car travels throughout the term of the agreement will impact the residual value of the vehicle at the end of the agreement. It will also affect your monthly payment price - the more miles you drive, the higher the monthly cost will be. If you exceed the agreed annual mileage limit, there will be a fee applied for every mile over that limit. The fee will vary depending on the vehicle and the type of Contract Hire agreement, but it's typically a couple of pence per mile.

The payments can be kept very low in a Contract Hire agreement because the leasing company must only cover the difference between initial purchase value and the value of the vehicle at the end of the lease agreement. The vehicle is owned by the leasing company for the duration of the rental, and typically you give the vehicle back at the end of the agreement.

The risk associated vehicle depreciation is taken by the leasing company providing the Contract Hire. Since the leasing company retains ownership throughout the agreement, the vehicle remains their responsibility at the end of it - even if it is worth less than the value they initially guaranteed.

Business Contract Hire

Because you rent the vehicle, Contract Hire is considered a service and therefore VAT is payable on the monthly rentals.

If you're a VAT registered company, you can claim back the VAT on the rentals. This could be an incentive for your business, because it could become the most cost-effective option.

Contract Hire also includes road tax in the monthly rentals and you can choose to add varying levels of maintenance to cover servicing and MOT costs. This means you could take a new car on a Contract Hire agreement and only pay for fuel and insurance on top of the monthly payments, for the duration of the contract.

If you are looking for a car finance solution for your business, then Creditplus can help. Our team of Customer Advisors are ready and waiting to listen to your business needs, so that we can provide the best finance solution for you.

Visit our Business Car Loans page for more details or apply now and get a quote straight away! 

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