Everything you need to know about Business Contract Hire
BUSINESS CONTRACT HIRE EXPLAINED
So, you’re looking to lease a vehicle through your business? Don’t worry, we can help. Usually, when someone is talking about car leasing, it’s likely they’re talking about Contract Hire (CH, for short).
We’ve put this page together to give businesses more information on CH. Contract Hire is also available for individuals, and we have a page explaining everything about Personal Contract Hire too.
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). When you reach the end of the agreement you return the car with nothing further to pay.
Of course, there are a few stipulations on how the car should be returned at the end of your contract; as the company won’t technically own the vehicle, this is also known as ‘fair wear and tear’.
THE PROS OF CONTRACT HIRE
- You don’t have to sell the car at the end so there’s no depreciation loss
- You won’t have to worry about negative equity as you won’t be paying for the full value 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 CONTRACT HIRE
- You won’t own the vehicle outright
- You’ll be subject to fair wear and tear conditions at the end of the contract
- You could incur charges should you go over the mileage allowance in your agreement
- 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 CONTRACT HIRE 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 the finance house will be able to sell the car for when it’s returned at the end of the contract. They will also be happier to reduce the rental costs because of the residual value they’ll retain.
Cars from Audi and Mercedes are popular choices when it comes to this type of lease as they hold their value. This means that you can rent one for a great price, far less than their full retail value.
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 travel 10,000 miles.
Overall, the payments are calculated by:
(Retail Price – Estimated Residual Value) / Months on Contract + Admin Fees = Monthly Payments.