Contract hire - a guide

Business and personal contract hire - a guide

Business contract hire:

Car or van contract hire (or leasing as it is sometimes called) is simply a method of long term rental, offering you a fixed monthly payment for the vehicle you want.

You can choose how long you want to keep the vehicle for and simply send it back at the end of the contract and order a new vehicle.

It is a simple way to budget your motoring costs, as all you do is insure and put fuel in your vehicle.

Why buy or own a car or van when they will lose value over time?

Contract hire protects you from the depreciation risk of owning a vehicle and can include maintenance cover/breakdown cover (optional), vehicle excise duty and much more.

This method of vehicle funding is ideal for companies who do not want to tie up cash buying outright nor have the financial risk of running their own car or van fleets.

Reduce the administration of buying, servicing (if part of the contract) and disposing of vehicles by contract hiring.

Just hand the vehicle back at the end of the contract and order a brand new vehicle - it's as easy as that!

Below are a list of benefits of contract hire and also the things you do need to know about this method of car or van vehicle finance.

Please have a look at the points so you are fully informed about this subject.

Benefits

* Even though a vehicle actually costs more to buy, the contract hire rental for a more expensive vehicle may be less, due to the method of setting a contract hire rental.

* Contract hire initial payment is usually three months rental but flexibility can be offered on deposits.

* Thereafter one fixed monthly payment, payable by direct debit, covers most costs providing better cash flow forecasting.

* Enjoy the contract hire and leasing company purchasing spend power and discounts as they buy in bulk.

* Freedom from disposal worries and risk as the job of selling the vehicle is down to the contract hire and leasing company.

* The driver of the vehicle may be able to buy the vehicle at the of the contract subject to the purchase price offered by the contract hire company being acceptable to both parties.

* The contract hire leasing company recovers the VAT on the vehicle purchase, which means the vehicle costs less to finance.

* This financial benefit is reflected in the rental you pay.

* Off balance sheet financing which is useful when your company has high borrowings elsewhere.

* Reduced administration and risk as maintenance, mechanical repair, replacement car, breakdown recovery, tyres, batteries and exhausts can be part of the contract hire package.

* Vehicle Excise Duty (Road Fund Licence) is normally included on either non maintenance or with maintenance contract hire.

* If you choose an annual mileage and perform at a higher or lower level, the contract hire company will normally amend the contract rental for you, to reflect this.

* The car or van is usually delivered nationwide to your door free of charge (UK mainland) and at the end of the contract it can also be collected.

But beware...

* Always check the annual mileage and the total number of the contract hire monthly payments you will be making (including the initial deposit rental), if obtaining other quotations elsewhere, to ensure you are comparing like for like.

* Always ask if there is a document fee involved as if you divide this fee by the number of months in your contract the "actual monthly" rental is higher than you think.

* VAT registered companies can only recover 50% of the VAT on the finance rental (100% on maintenance).

* Business contract hire is a fixed contract to term and mileage. Go over the contract mileage and you will pay an excess mileage charge at a pence per mile rate.

* There will be a termination charge, if you return the vehicle early to the contract hire company and this will vary between different companies.

* If you opt for a non maintenance contract then if the vehicle breaks down it is up to you to fix it.

* If you don't opt for breakdown cover as part of your contract check what the manufacturer offers FOC (normally first year only but varies).

* If you damage the vehicle, it needs repairing and it is your fault, then this is not covered under the “with maintenance” contract.

* Glass and windscreen replacement is not normally covered under the "with maintenance" contract. This may be covered under your insurance policy however.

* If you return the vehicle in a damaged condition, other than "Fair, Wear and Tear", you may be liable for a bill.

* You need to insure the vehicle in line with the contract hire company requirements.

* If the vehicle is written off for any reason, you may be liable for the difference between the vehicle book value of the contract hire company and what your insurance company pays out.

* Not all the rentals you pay can be offset against your company profits, as there is a sliding scale restriction on the allowances for more costly cars over £12,000.

From April 2009, carbon emissions of company cars will impact the tax relief available for businesses as well as the tax charge on the individual.

This will replace the current sliding scale system and will move to a new 15% restriction for contract hired cars with CO2 emissions over 160g/km.

Therefore companies will find contract hire is more tax effective for more expensive vehicles than before.

Personal contract hire:

Personal car contract hire (or personal or private car leasing as it is sometimes called) is simply a method of long term rental offering you a fixed monthly payment for the vehicle you want.

You can choose how long you want to keep the vehicle for and simply send it back and order a new vehicle at the end of the contract. It is a really simple way to budget your motoring costs, as all you do is insure and put fuel in your vehicle.

Why do you want to buy a car when they will lose value over time?

Personal Contract Hire (Private Car Leasing) protects you from the depreciation risk of owning a vehicle and can include maintenance cover/breakdown cover (optional), vehicle excise duty and much more. This finance method can be attractive for company car "opt out" employees or private individuals who do not want to tie up cash in their car nor have the financial risk of owning their vehicle.

You can reduce the administration of buying, servicing (if part of the contract) and disposing of vehicles by personal contract hiring via our Contract Hire Partners.

Remember, just hand the vehicle back at the end of the contract and order a new vehicle - it's as easy as that!

Below are a list of benefits of contract hire and also the things you do need to know about this method of vehicle funding. Please have a look at the points so you are fully informed about Personal Contract Hire.

* Even though a vehicle actually costs more to buy, the contract hire rental for a more expensive vehicle may be less, due to the method of setting a contract hire rental.

* The contract hire initial payment is usually three months rental but flexibility can be offered on deposits.

* Thereafter one monthly payment, payable by direct debit, covers most costs providing better budgeting.

* No benefit in kind if you are opting out of a company car scheme.

* Enjoy the contract hire and leasing company spend power and discounts.

* Freedom from disposal worries and risk as this is the job of the contract hire and leasing company.

* The contract hire leasing company recovers the VAT on the vehicle purchase, which means the vehicle costs less to finance. This financial benefit is reflected in the rental you pay.

* Reduced administration and risk as maintenance, mechanical repair, replacement car, breakdown recovery, tyres, batteries and exhausts can be part of the contract hire package.

* Vehice Excise Duty (Road Fund Licence) is normally included on non maintenance or maintenance contract hire.

* As the driver of the vehicle, the Contract Hire company may provide you with a purchase price to buy the vehicle if this is acceptable to both parties, but you need to check this with each company.

* The car or van is usually delivered nationwide to your door free of charge (UK Mainland) and at the end of the contract it can also be collected.

But beware...

* Add VAT to the rental as you cannot claim the VAT back as a private individual.

* Always check the annual mileage and the total number of monthly payments you will be making (including the initial deposit rental), if obtaining other quotations elsewhere, to ensure you are comparing like for like.

* Always ask if there is a document fee involved as if you divide this fee by the number of months in your contract the "actual monthly" rental is higher than you think.

* Personal contract hire is a fixed contract to term and mileage. Go over the contract mileage and you will pay an excess mileage charge at a pence per mile rate.

* There will be a termination charge, if you decide to return the vehicle early to the contract hire company.

* If you opt for a non maintenance contract then if the vehicle breaks down it is up to you to fix it.

* If you don't opt for breakdown cover as part of your contract check what the manufacturer offers FOC (normally first year only but varies).

* If you damage the vehicle, it needs repairing and it is your fault, then this is not covered under the "with maintenance" contract.

* Glass and windscreen replacement is not normally covered under the "with maintenance" contract. It may be covered under your vehicle insurance however.

* If you return the vehicle in a damaged condition, other than "Fair, Wear and Tear" you may be liable for a bill.

* You need to insure the vehicle in line with the contract hire company requirements.

* If the vehicle is written off for any reason, you may be liable for the difference between the vehicle book value of the contract hire company and what your insurance company pays out.