What is A Contract Hire?

What is Contract Hire?

Contract hire is the most common way people in United States, UK lease vehicles.

By definition, it is a form of vehicle leasing that allows the person leasing to use a car for a pre-determined period or mileage in exchange for fixed monthly payments.

The best thing about contract hire (and probably the reason why Brits love this form of leasing) is the fact that a car contract hire does not involve the obligation to purchase the vehicle when it ends.

When the contract ends all the lessee has to do is to return the car. The leasing company then checks the car’s condition and mileage and if there is nothing else to pay, the lessee simply goes home or can get another car on contract hire.

With regards to car contract hire monthly payments, contract hire companies typically set monthly payments by considering things such as the car cost, the vehicle registration fees, the road tax, the agreed mileage, the use period, the predicted residual value of the car, and so on.

While these may sound like too many things that need to be considered, the monthly payments are typically cheaper than financing a new car.

Contract Hire FAQs

  • Is a contract hire the same thing as leasing?

Absolutely! Contract hire is a special form of leasing that allows the lessee to rent a car for an extended period in exchange for monthly payments. Like most types of car leasing, contract hire does not include an obligation to buy the car in the end.

  • What are the advantages and disadvantages of contract hire?

The advantages of contract hire are many.

First, car contract hire includes no obligation for the lessee to purchase or sell the vehicle.

Whatever happens to the vehicle is on the company contract hire.

Second, fixed monthly payments as is the case with most contract hire agreements make budgeting easy for individuals and companies.

Third, a contract hire is a VAT-efficient way to get and operate a business car.

Fourth, a contract hire usually only attracts a fixed cost. No need for extra payments for servicing and maintenance.

Lastly, a car contract hire reduces in-house administration. Car contract hire has two big disadvantages. First, the penalty for breaking a contract hire lease is generally expensive and punitive. Second, a car contract hire does not allow you to do any modifications to the car.

 

  • What is the difference between a contract hire and a car contract purchase agreement?

You now know all you need to know about car contract hire agreements. It is time to know about car contract purchase agreements to understand the difference between the two types of agreements.

A car contract purchase agreement is an agreement that allows a company or business to lease a new vehicle by paying an initial amount and then fixed monthly payments for a set period. The payments do not attract VAT.

At the end of the fixed or set period, the lessee in the agreement can purchase the vehicle at a set price agreed in the agreement. This set price is called a balloon payment.

The main difference between car contract hire agreements and car contract purchase agreements, is that car contract hire agreements have more flexibility at the end of the agreement period and no purchase obligation.

contract hire

  • Is servicing part of contract hire monthly rates?

This depends on the contract hire company. Some contract hire companies have a service component in their contract hire template agreements, while some do not have.

Those that have a service component in their agreement will require you to pay a bit more for regular servicing and maintenance, breakdown assistance, fuel cards, accident management, and so on.

  • What do car contract hire monthly payments look like?

Normally, company contract hire require individuals to pay a minimum amount to get into a car contract hire agreement with them.

Consider this amount a commitment fee or a deposit.  The amount is often equal to about three monthly payments and it has to be paid for a lessee to be allowed to drive away with a car.

While it is often equal to three monthly payments, in some contract hire companies it can be equal to up to nine monthly payments.