Contract Hire is a leasing product, and differs from our finance products because it does not allow the customer to take ownership of a car. In the following guide we have explained what is meant by Contract Hire and how it works.
Contract Hire is a leasing product where you simply rent the vehicle by paying set monthly payments. Contract Hire is not a loan as you are not paying the monthly payments to take ownership of the vehicle. Because you rent the vehicle, it 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.
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 only has to 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.
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 have to pay for fuel and insurance on top of the monthly payments for the duration of the contract.
The risk with the vehicle depreciation is taken by the leasing company providing the Contract Hire. This is because the leasing company retain the ownership of the vehicle and therefore it's their responsibility at the end of the agreement whether it is worth more or less than the value they initially guaranteed.
“Vehicle leasing is the leasing (or the use of) a motor vehicle for a fixed period of time at an agreed amount of money for the lease. It is commonly offered by dealers as an alternative to vehicle purchase but is widely used by businesses as a method of acquiring (or having the use of) vehicles for business, without the usually needed cash outlay. The key difference in a lease is that after the primary term (usually 2,3 or 4 years) the vehicle has to be returned to the leasing company for disposal…”
If you are looking for a car finance solution for your business, than 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. Visit our Business Car Loans page for more details.
Can I get a business car leasing agreement with Creditplus?
This data has been put together with help from the Creditplus Customer Advisors.
If you require further assistance, our team of Customer Advisors are here to help. We're open six days a week - you can view our opening hours here - and we're more than happy to answer your questions.