What is contract hire?

Car Leasing Home : Business and Personal Contract Hire : What is contract hire?

Contract hire - this is the most popular form of car leasing for the corporate consumer and is probably one of the most well known forms of funding car leasing requirements. Contract hire has historically been the method of choice for the business user as a suitable method of financing a company's vehicle requirements. In a contract hire agreement, the monthly costs - or rentals - are calculated by using the purchase cost of the vehicle, the duration of the contract period required, the projected annual mileage and the value of the vehicle at the end of the contract hire agreement. The monthly payments, or rentals, over the contract hire period are decided by the funder - the industry norm is that there is an initial payment equivalent to three monthly contract hire payments, followed by regular monthly payments to the end of the contract. Contract hire agreements can also be written as "terminal pause" contracts where the rentals are divided so that the final three months of the contract hire period are rental free - either way the total amount payable over the period of the contract hire will be the same.

The contract hire agreement can be written to fit the company's specific requirements, and contract hire agreements can also include the vehicle maintenance/service and tyres, roadside assistance, and a relief vehicle. By writing some, all, or none of the above options into the contract hire agreement the business user can clearly see their monthly or annual vehicle costs. The industry usually writes contracts for 2, 3 ,4 or 5 years - although contract hire agreements can be written for periods in between an annual anniversary date to suit the end user. The contract hire agreement will also include the road fund licence for the duration of the contract.

The vast majority of vehicles supplied by carleasinguk.com on contract hire are new, and all vehicles supplied by carleasinguk.com are sourced from our UK based dealer franchised network. Every vehicle will be supplied with at least 12 months warranty cover and breakdown with roadside assistance as provided by the manufacturer - in some cases these will last for the duration of the contract hire period, according to each manufacturer's stipulations. At the commencement of the contract hire period the client typically receives a letter from our Customer Services department, confirming the details of the contract hire agreement, warranty and breakdown cover and contact details for these services. Additionally, with a contract hire agreement the corporate user has no depreciation issues and there will be no disposal problems - at the end of the contract hire period the company has several options: they can take out another contract hire agreement on a new vehicle, and we will arrange the delivery of the new car to coincide with the collection of the old one at the expiry of its contract hire period; they can opt not to take a further contract hire agreement or in some cases we can try to arrange for a third party to purchase the vehicle - the company in the contract hire agreement are not allowed to purchase the vehicles at the end of their contract hire agreement. The business or corporate user will also find using contract hire agreements for their vehicles beneficial as parts of the contract hire are VAT-reclaimable.

Contract hire agreements are clear and concise, the contract hirer knows each month what his vehicle costs will be, leaving him to budget only for the variable "consumables" such as fuel and insurance. In common with other car leasing schemes contract hire agreements have penalty fees payable if the mileage exceeds the contracted mileage (known as the excess mileage charge) - this charge is clearly shown on the contract hire document. There may be charges if the vehicle is returned with more than "fair wear and tear" damage at the end of the contract hire agreement and we are able to provide a fair wear and tear guide, if required. Contract hire agreements can usually be varied if the user finds that he is covering more or less miles than he negotiated on his contract hire agreement initially. In normal circumstances mileage variations are allowed on contract hire agreements up to six months before the contract hire period ends.

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