Contract hire and leasing

Car contract hire explained

Car contract hire is a way of acquiring a vehicle for a fixed period. You get to drive the car but not to own it. At the end of the period, the car goes back to the contract hire company.

The amount you pay for the contract hire will depend on several things: the retail price of the car (how much it would cost if you bought it); its residual value (how much it is likely to be worth at the end of the contract due to depreciation, mileage, etc). You will pay the difference between the two figures as a monthly instalment.

Contract Hire Advantages

One plus point about car contract hire is that it lets you budget with fixed monthly costs. Also, you don’t have to sell the car to anyone. What’s more, this method is ideal if you want to drive a new car every few years.

A number of contract hire agreements also come with maintenance built in. So the only expenses are car insurance and fuel.

Businesses also find this route attractive. Companies can update their fleets frequently, ensuring that they have the latest models. It also eliminates the need for substantial down payments, and lets them adjust the size of their fleet easily if staff numbers rise or fall. Businesses that are registered for VAT can reclaim 50 per cent of the total payments made – and all of the maintenance charges.

Contract Hire Disadvantages

The main disadvantage is that the car will never become yours. The difference is not unlike buying a house through a mortgage compared to renting it. For this reason, a contract car hire agreement will probably be far cheaper than a car loan, particularly one offered through the dealer.

Another disadvantage is that the personal contract hire facility is a personal liability to the person hiring it, just like any other loan.

Contract car hire is not for everyone. But depending on your circumstances, it might be worth considering.

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