Contract Hire allows you to pay a set monthly fee for an agreed period and mileage allowance. Road Tax, maintenance and breakdown cover can be included for an additional fixed cost, so this is a good way to help with any ongoing costs at the same time.
Contract Hire agreements are designed to cover the depreciation costs of the van over the term plus interest, but not the full cost of the van. The rental cost is based on the price of the van excluding VAT. Interest is added to the ex-VAT price of the van and the balance (minus the leasing company residual value risk / balloon payment) is paid over a fixed period. The rentals attract VAT at the current rate. Deposits are not taken; however advance rentals are usually required at the start of the agreement.
One of the big differences is that with Contract Hire you always hand the van back to the leasing company at the end. You are not responsible for the disposal or sale price of the van. A Contract Hire agreement can be ended at any point during the agreement. However, there could be large penalties for doing this. You may also have the option to extend the length of the contract past the Primary Period of Hire. There may be a change in the rental amounts for this additional period.
For drainage companies, the benefits of contract hire come with a big caveat. You are responsible for ensuring the van is compliant with the servicing and MOT requirements. This information can be found in the van handbook. If the agreement is without maintenance and is longer than three years, you will take over the MOT obligations from year three. As the agreement is based on expected mileage, if you exceed this you will be charged. The charge per mile will be shown on your contract along with your expected mileage.
Fair wear and tear is also taken into consideration. It occurs when normal usage causes acceptable deterioration to a van. It should not be confused with damage from a specific event, such as an impact. At the end of the agreement the van will be inspected for damage, and you will be charged for anything considered to be outside the fair wear and tear guidelines. The leasing company should provide you with a copy of this standard at the start of the lease and prior to collection. If not, you can search for guidance on the BVRLA website. But every agreement is different, so you really need to make sure that you know what the terms in the agreement are before you sign.
Benefits
- It’s hassle free, as you can drive away a new vehicle without worrying about how you’ll re-sell it.
- Most leasing companies will offer an option with maintenance built in, eliminating unexpected repair bills.
- Your monthly payments on the vehicle will be much lower than if you were buying it.
- You will have access to new vehicles that you may not have been able to afford to buy.
Things To Bear In Mind
- There’s no option to buy the vehicle at the end.
- You will need to agree an annual mileage allowance at the beginning of your contract – there will be a mileage charge if you exceed this.
- Just like your mobile phone contract, you are tied in for the full duration of the agreement and there may be significant charges if you need to change or stop the contract.
