What is Contract Hire?
Contract Hire is the official name for “Leasing”; you’re effectively renting a vehicle for a set number of months for a fixed cost, on the condition you only cover a certain number of miles and return the vehicle in an acceptable condition.
With Contract Hire, at the end of the agreement, you return the vehicle – whereas a Personal Contract Purchase (“PCP”) agreement means that you pay an initial payment, monthly payments and at the end of the agreement, you either return the vehicle or pay the optional final payment (sometimes referred to as a “balloon”) and own the vehicle outright.
The monthly payments on a PCP go towards the use and possible future ownership of the vehicle, whilst Personal Contract Hire (PCH) payments cover your use of the car and the associated depreciation.
The benefits to Contract Hire are that when the contract is up, you can return the vehicle and select another one, with a new lease timed to coincide with the end of your contract.
You can choose to include vehicle maintenance and replacement tyres within the monthly payment and all Contract Hire agreements include Road Tax, meaning the only thing left to pay is insurance and fuel!
How Does Mileage Work When Leasing?
When you start the quote process, we’ll ask you how many miles you expect to cover in a year. This is used to calculate the monthly costs. The mileage is a total for the term of the contract and is not reviewed by the finance company annually.
8,000 miles a year X 48 months = 32,000 miles.
This is the agreed mileage for the contract term, and if you exceed the mileage allowance, the finance company will charge you an excess mileage fee.
It is best to roughly calculate your daily/weekly/annual commute, then take into account extra journeys such as holidays, recreation and general domestic tasks.
Contract length when leasing
The contract length is generally between two to four years. With this in mind, it's best to budget and consider all monthly outgoings before committing to a term, as it’s vital to think about whether you will be able to comfortably afford the payments for the duration of the lease you agree to. If your circumstances change and you decide to terminate the agreement, you will be required to pay an early termination fee.
What The Initial Payment Means When Leasing
When you take out the contract, you’ll be asked to pay an initial payment of three, six, nine or 12 months’ worth of payments. This is not a deposit, but the more you pay initially reduces the total amount outstanding and therefore reduces your monthly payments.
The initial payment is a balance of what you can afford monthly and what you can initially. Budget carefully and be sure to not over-commit financially.
What is the difference between personal and business contract hire?
Contract Hire is available for personal and business customers. The costs are calculated in the same way for both types. The only difference is that VAT is included in the price for personal and all payments are plus VAT for businesses.
If you’re a business customer, there are tax incentives based on the CO2 emissions of the vehicle, encouraging the use of eco-friendly vehicles.
Why it’s important to pick an agreement that works for you
As ownership is rarely available at the end of a leasing agreement, those choosing this option should make sure it works for them, i.e., choosing a realistic mileage allowance could rule out any additional charges when handing the car back.
When the car is collected, it will be inspected by the agent and any damage that is not considered to be “fair wear-and-tear” will be subject to a damage charge. You should keep this in mind throughout the agreement and carry out your own inspection before the car is collected. To help with this, we will send a copy of the British Vehicle Leasing and Rental Association’s Fair Wear and Tear guide to you.
Leasing with us
At Leasing Options, we offer value, choice and great service.
Leasing Options not only have 30 years’ experience, but we also hold a 5* TrustPilot rating and provide a Price Match Promise, guaranteeing you the best possible price on the car of your dreams.
If you have more any questions though don’t be shy, pick up the phone and contact one of our team here today and they’ll get you right up to speed with everything you need to know. Don’t forget to check out our special offers available too and see how you could save even more.