What is contract hire?
Contract hire is a long-term vehicle rental agreement. You pay to ‘rent’ the vehicle for the period of your selected contract term, and then return the vehicle at the end of the agreement.
How does contract hire work?
If you choose to lease a car on a contract hire basis, you will make a series of monthly payments for the duration of your lease agreement which varies between 24 months to 60 months.
Finance is subject to status and conditions. You may choose a payment profile that is suited to your financial needs, either by making flat equal payment for the duration of the term or make an initial payment which is either 3, 6, 9 or 12 months advance payment. This would reduce your subsequent monthly payments.
For the duration of the agreement you have the option to choose the mileage allowance that suits your specific driving conditions. However, you need to be aware of the excess mileage charges that may be applicable over and above your annual mileage allowance.
You pay for the use of the vehicle throughout your contract, and then return the car to the finance company at the end of the agreement without any further obligations, leaving you free to lease or purchase another vehicle.
In some cases (subject to approval from the finance provider), you may be able to extend the vehicle contract.
Am I eligible?
This type of agreement is available to all financially eligible drivers looking to lease a vehicle for private / business use.
The key features of contract hire:
- Contract hire is the most common form of car leasing
- Fixed monthly rentals cover the rental of the vehicle, plus any maintenance options if chosen
- The monthly rentals are calculated by taking the following into consideration:
- The cost of the vehicle
- The contract period
- Anticipated residual value of the vehicle (how much the vehicle is likely to be worth at the end of the contract)
- Mileage allowance (as chosen by you before the start of your contract)
- Any additional options, such as a maintenance contract
- You never technically own the vehicle – it remains the property of the finance company. However, this means you do not need to worry about the vehicle’s depreciating value
The key benefits of contract hire
- Low initial rental
- Fixed rentals for the whole package, making budget planning easier
- Flexible terms to meet your finance requirements and driving habits – with variable contract duration and mileage terms
- Maintenance of vehicles can be included in the monthly fees, spreading the cost
- Allows you to use a vehicle that might otherwise be unreachable in terms of its on-the-road (OTR) cost
- When returning the vehicle at the end of your agreement, you do not need to worry about depreciation or disposal
Considerations for PCH
- Early termination can be expensive
- If you have exceeded your agreed mileage, an excess mileage charge will be payable, worked out on a 'pence per mile' basis as set at the start of your contract
- You must return the vehicle in a well maintained condition. Any damage over and above that stated in the Fair Wear and Tear Guide will be subject to additional charges
- Vehicle must be insured with full comprehensive cover
- You will never own the vehicle as there is no option to buy it
What happens at the end of the contract?
At the end of the contract, the vehicle is returned to the leasing provider, meaning you are free to hire or purchase another vehicle without any outstanding financial obligation.
If you have exceeded your agreed mileage, an excess mileage charge will be payable, worked out on a ‘pence per mile’ basis as set at the start of your contract.
When returning your vehicle, it will also be assessed according to the BVRLA Fair Wear and Tear guidelines. Any damage that falls outside of these guidelines may be subject to end-of-lease penalty charges. For more information on this, visit BVRLA website
