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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:
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The cost of the vehicle.
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The length of the agreement.
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The estimated residual value of the vehicle.
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The annual mileage allowance.
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Additional factors such as an ongoing maintenance agreement.
Contract hire explained
Contract hire is a leasing finance option for vehicles such as cars, vans and trucks. Business contract hire works in a similar way to personal contract hire, however, it's designed for sole traders, partnerships and limited companies.
A business contract hire agreement can be for a single car, van or a fleet of vehicles. With a business contract hire agreement, you can take on your selected vehicle over a set period from 1 to 4 years. Monthly repayments are fixed over the agreed period, ensuring that you know how much is due and when.
Contract hire does not offer the ability to own the vehicles at the end of the agreement. Before your agreement comes to an end, arrangements will be made for the vehicles to be returned to the hire company.
If your business is VAT registered, you will be able to reclaim 50% of the VAT on the rental amount. If you opt to take out maintenance, you will be able to reclaim 100% of the VAT on the maintenance cost.
A guide to commercial vehicle contract hire agreements
A business contract hire agreement is an ideal way to purchase commercial vehicles, such as vans, tractors, cars and plant machinery. A contract hire agreement is a popular option for the long-term rental of vehicles for every type of business. Whether you are a sole trader, partnership, or operate a limited company, there are competitive options available.
In most cases the monthly payments work out less than buying the car and your fleet will always benefit from the latest vehicles. To help you learn more about these types of agreements, this guide will take you through everything relating to contract hire meaning. We will also explain how to compare contract hire agreements and find the best deal.
The benefits of contract hire and leasing UK
The main benefit of a business contract hire lease is the low initial rental amount, which can provide businesses with an affordable option. It is usually much cheaper than the cost of buying the car, with the business benefitting from a modern fleet. As soon as the contract ends, and the vehicle is returned you can begin a new contract with a new vehicle.
There are so many business contract hire deals available, that it is possible to negotiate competitive fixed payments for the whole period. Although, it is also possible to arrange cheap contract hire deals with variable lengths and mileage limits.
When it comes to business contract hire cars, there are also benefits to the company's balance sheet. These types of contracts will remove depreciating assets from the businesses balance sheet. This also removes the risks usually associated with commercial vehicle ownership. In addition, being able to factor in vehicle costs in advance means your business is able to budget effectively. If the vehicle is solely for commercial use, it is possible to reclaim 100% of the VAT. If it is also used privately, the business is eligible to reclaim 50% of the VAT.
Disadvantages to business contract hire agreements
Before committing to a business contract arrangement there are some potential disadvantages which you should consider. For example:
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There could be additional charges for early termination.
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If the vehicle is damaged above the levels set out in the fair wear and tear guide, there will be costs to pay.
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There is never an option to purchase the vehicle from the company.
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Exceeding the agreed mileage will result in a charge for each mile used over the contract agreement.
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Your business will need to pay for fully comprehensive vehicle insurance.
This means it is important to compare hire terms, so that your business is fully aware of the lease terms. By taking the time to compare contract hire deals it is possible to find and negotiate an arrangement which suits your business.
Asset contract hire finder
- Compare asset contract hire deals online with our easy to use loan finder service. We just need to know a little bit about your business and what you need, we'll compare the market to find a contract hire deal for you.
What happens once I've found contract hire finance?
Once you've compared and found the right contract hire deal for you and have made a successful application, in most circumstances, you will be required to make a payment for administration costs, followed by a minimum payment of three-monthly instalments.
Once your agreement is in place and you've taken delivery of your vehicle(s) your monthly payments will be scheduled accordingly.
Features of contract hire
Contract hire forms a financial agreement between a lender and the user. The benefits of using contract hire for your business are:
Low initial payment, generally business contract hire only requires three monthly payments in advance.
Fixed monthly costs helps you to manage your budget.
Hassle free, road tax and maintenance can all be included within your agreement.
Flexible arrangements with terms ranging from 1 to 4 years, you can manage your company vehicles and respond to market conditions accordingly.
Free up business capital, contract hire allows you to use new vehicles without tying up capital or worrying about depreciating assets.
Tax advantages for VAT registered businesses, you can reclaim 50% of the VAT on your contract hire payments and 100% on maintenance add-ons.
In many situations the funds can be released in just 48 hours, giving your business quick access to the cash it needs
Contract hire - Frequently Asked Questions
In some ways a hire arrangement and finance lease are similar. This is because they both involve the payment of an agreed monthly payment for a fixed duration. The main difference between a business contract hire agreement and a finance lease are the potential financial implications.
For example, a van which is used heavily in a hire agreement is more likely to incur charges for damages and repairs. This is because the condition of the vehicle may not meet the fair wear and tear terms. In these situations, a finance lease may be more suitable for vehicles where there is a chance of damage. Alternatively, if you are looking to switch contract to hire agreement terms, which are more flexible a finance lease may be an alternative option.
When it comes to the end of the van contract hire and leasing agreement, there are also some key differences. At the end of a finance lease, if the vehicle sells for a higher price you will receive the difference. Alternatively, it is also possible to purchase the vehicle for a reduced amount. These differences mean that it is always important to compare hire availability.
At the end of your contract hire agreement, a final payment will be made. In the run up to this, arrangements will be made by the contract hire company for your vehicle(s) to be returned. Your agreement will contain all the details you need to understand in full. Once your contract hire has come to an end, you can look to:
Take out a new contract hire agreement.
Make alternative arrangements if required.
Here at BusinessComparison, we work with a panel of more than 30 lenders who specialise in all forms of lending. By working with a wide variety of lenders our team are in the ideal position to negotiate the best contract hire deals.
The first step is to enter your details into our contract hire finance comparison tool. We will ask simple questions such as, the length of contract required and your financial position. This will help us get to know your business, so we can advise which forms of finance will closely match your requirements.
Within a few minutes you will be able to choose from a range of arrangements, which meet the needs of your business. Once you compare available contract hire deals, we will pass your details across to the lender who will process your application.
Find the best asset finance deals with the BusinessComparison tool
There are a variety of options for contract hire cars UK wide, but our team can help you compare contract hire deals. We specialise in helping businesses across the UK access cheap contract hire cars and other forms of finance. To compare contract options or to find out more about business hire, please contact our experienced team today.
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