Overview

Contract hire, often referred to as car leasing, is perhaps the most popular form of a vehicle leasing contract available on the market today. This agreement allows a driver to drive a vehicle for a set period of time, but the driver will never actually own the vehicle. Typically, a monthly rental plan is set up for the length of the contract, on completion of which the vehicle is returned to the hire company.

Installments will be decided by an array of different factors, the primary one being the retail cost of the vehicle. Another determining factor is the expected value of the vehicle at the conclusion of your contract. This value takes into account devaluation, expected mileage and other contributing factors. Rentals are decided by the variance between these two figures; so higher residual values lead to lower monthly rentals.

The pros and cons of contract hire are largely subjective and will very much depend on the individual. For instance, not having possession of the vehicle can be a sticking point for some individuals, but it can be a blessing for those who do not wish to deal with re-sales and depreciation concerns. Many contract hire arrangements will also come with maintenance packages; so all you have to be concerned about it your comprehensive car insurance and running costs.

The Pros & Cons of Contract Hire

Pros

  • Fixed-cost motoring, allowing you to stay in control of your payments and budget effectively.
  • VAT registered businesses will also find this option beneficial as they can claim back 50% of their total payments and 100% of all maintenance expenses
  • Hire rental tax allowances can also be harnessed.

Cons

  • You must give back the vehicle on completion of the contract; however, as mentioned previously this may not be an issue for everyone.

Is Contract Hire right for me?

Your motoring lifestyle will help you decide if contract hire is ideal for you. Travelling a lot will increase your mileage and therefore increase your vehicle’s depreciation; this will bring up your monthly instalments. Travelling varying distances each day can also make it tough to estimate your total mileage, which may cause problems as exceeding your limit can incur charges.

On the other hand, if you are looking for easy set monthly costs, are happy to hand your vehicle back at the end of your term and like the idea of having a new vehicle every few years; contract hire is perfect for you. Business owners will find this option particularly useful as it will allow them to update fleets on a regular basis whilst avoiding large deposits.