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Contract hire finance explained

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What is contract hire?

Contract hire is the most popular type of vehicle leasing option in the UK. This form of asset finance gives businesses a cost-effective solution to enjoy the use of a new vehicle without the worry of selling or depreciation.

Businesses use these agreements to finance their vehicle fleet for an agreed period of time. The business must pay a minimum down payment, which can range from a small payment to the equivalent of several months’ worth of payments. Following this, there are fixed monthly payments throughout the arrangement.

The most common forms of business contract hire are for 2- or 3-year periods, but they can be between 24 and 60 months. The mileage allowance is normally fixed for each year, with the maximum number of miles set anywhere between 8,000 and 40,000 per annum. Although, when it comes to contract hire vans, cars and other types of vehicles each will fall under different criteria.

The flexible nature of business contract hire means as soon as the contract ends the vehicle is given back. This means that your business can compare contract hire agreements and move on to hiring a new vehicle.

At the end of the agreement period, the vehicle will be returned, and the provider will inspect the vehicle. If there are excess miles recorded or there is any damage, there is likely to be an additional charge to pay.

During all business contract hire agreements the lender remains the owner of the vehicle. The terms are very similar whether you are interested in a car contract hire or a van contract hire. There are several factors which determine the cost of the monthly rental price, including:

  • The cost of the vehicle.
  • The length of the agreement.
  • The estimated residual value of the vehicle.
  • The annual mileage allowance.
  • Additional factors such as an ongoing maintenance agreement.

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