Vehicle Leasing Finance Options

Business Contract Hire

Business contract hire agreements allow a business to take on cars for a set period of time (usually between 12 months and four years) and pay via fixed monthly instalments. The company taking out the agreement doesn’t own the vehicles, so when the term of the contract is over, the cars are returned to the lease company.

It’s important to understand how your payments are determined. The lease company will work out the ‘residual value’ of the vehicle – the value at the end of the contractual period once depreciation is taken into account. To estimate this value, the lease company will ask you to stick to a strict mileage limit, and exceeding this limit could see you penalised at the end of the term. The lease company will deduct the estimated residual value from the retail price of the car, leaving you pay the difference in monthly instalments.

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Benefits

  • Low initial payment
  • Fixed monthly costs
  • Hassle free
  • Allows a business to free up capital
  • Some or all of the rental can be offset against taxable profits

Drawbacks

  • Beware of excess mileage
  • No option to buy the vehicle at the end of the term
  • Standard wear and tear is allowed, but anything more severe could be chargeable

Personal Contract Hire

Personal Contract Hire is effectively a long-term car rental. Many people think it’s only available to businesses, but it’s not. With a lease agreement you effectively agree to hire a vehicle for a set period of time based on a pre-agreed annual mileage. There is an initial rental (usually three, six or nine times the monthly rental), followed by monthly rentals spread over the length of the agreement. The more you put down up front, the cheaper the monthly payments will be, and vice versa. It’s important to understand how your payments are determined. The leasing company will work out the ‘residual value’ of the vehicle – that is its value at the end of the contractual period once depreciation is taken into account. This is why the company will ask you to stick to a strict mileage limit while you drive the car. To determine your payments, the company will deduct the estimated residual value from the retail price of the car, leaving you to pay the difference in monthly instalments. At the end of the contract, you simply return the vehicle in an agreed state with an agreed mileage.

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Benefits

  • Fixed monthly payments
  • Low initial payment
  • Monthly instalments are generally lower than those of a personal loan
  • Road Tax is generally included for the duration of the agreement
  • Optional maintenance packages
  • No depreciation concerns
  • Access to more 'upmarket' vehicles

Drawbacks

  • Third party car insurance won't cover the vehicle, you'll need a fully comprehensive deal
  • You never own the vehicle
  • Possible end of contract charges from any damage or excess mileage
  • No option to buy the vehicle at the end of the contract