What is Business Contract Hire (CH)?
Business Contract Hire Explained
In general when someone is talking about car leasing, they’re talking about Contract Hire (or CH for short). This page is designed for businesses, although it is available on an individual basis (see our personal contract hire page).
Put in simple terms, a business CH agreement allows a company to rent a car for 1 to 4 years (or up to 5 years if you’re looking to lease a van). After the time is up, the car is given back without anything further to pay.
Of course, as the company won’t technically own the vehicle the contract comes with a few stipulations on how the car should be returned – also known as ‘fair wear and tear’.
The Pros of CH
- You don’t have to sell the car at the end so there’s no depreciation losses
- You won’t have to worry about negative equity as you won’t be paying for the full amount of the vehicle
- Contract Hire agreements are easy to budget as the monthly cost will remain low and consistently the same throughout the contract
- Road tax is included throughout
The Cons of CH
- You won’t own the vehicle outright
- You’ll be subject to fair wear and tear conditions at the end of the contract
- Mileage restrictions could result in extra charges should you go over
- The car has to be serviced throughout which will incur an extra cost (although there are maintenance agreements available which can help spread out the cost in your budget)
How is a CH price determined?
With a CH agreement, the price is generally determined by the residual value of the car at the end of the contract. What this means is, the better a car holds its value, the more they’ll be able to sell the car for afterwards, the happier they’ll be to reduce the rental costs.
This is why Audi’s and Mercedes are so popular for this type of lease, they hold their value so people can rent them for great prices where they otherwise wouldn’t be able to afford them.
The mileage is the biggest factor in calculating the expected level of depreciation, and therefore the end value of the car. If you drive 30,000 miles a year, you can expect the car to reduce in value much faster than if you only traveled 10,000 miles.
Overall, the payments are calculated by:
(Retail Price – Estimated Residual Value) / Months On Contract + Admin Fees = Monthly Payments.