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Contract Hire and Leasing Guide

Business Contract Hire

All Vehicle Contracts Contract Hire and Leasing Guide - Business Contract Hire
  • Business Contract Hire


    Is business contract hire suitable for your requirements?

    Contract Hire is exactly what the name suggests. It is an agreement to hire a vehicle over a fixed term with an annual mileage limit.

    Contract Hire is now the business users’ most preferred option to acquire a new vehicle – it is suitable for all types of small and large companies, as well as partnerships, that are VAT registered. If you fall into this category, then choosing Contract Hire could be what you’re looking for.

    To make life as simple as possible, All Vehicle Contract’s website helps you choose and compare which vehicle and Contract Hire deal is right for you. Interactive quotation options and full vehicle comparisons, on virtually any make, model or manufacturer, are available for you to explore and compare on line.

    Due to cost savings and the many benefits Contract Hire has to offer, it is little wonder that over 60% of vehicles are currently obtained by some form of Contract Hire or Leasing scheme.

    Benefits of Contract Hire
    • Affordable, fixed cost motoring can be tailored to suit your monthly budget and annual mileage, making budgeting easier and straightforward
    • Contract Hire offers fixed repayments over a period on the exact vehicle that suits you
    • There is a low initial outlay; Contract Hire allows you to choose your own initial payment and contract term, usually between 24-60 months
       
    • 50% of the VAT is reclaimable on the monthly rental for VAT registered companies, with 100% reclaimable on the service and maintenance element
    • Servicing and maintenance packages can be included if required giving you a totally fixed monthly budgeting option and taking care of all your motoring costs (with the exception of fuel and insurance)
    Typical Contract Hire period

    Contract Hire is usually set for periods of between 24-60 months. In some instances, 12 and 18-month contract periods may be available.

    Typical Contract Hire initial payment

    Contract Hire initial payments are usually calculated in ‘months’, from 1 month in advance up to 6 or in some instances, 9 months in advance. Of course, the higher the initial payment, the lower the monthly payment, therefore it is important to check advertised prices and compare quotes like for like on an overall basis.

    Contract Hire payment profiles

    Contract Hire payment profiles consist of an initial payment and fixed, spread monthly payments based on the initial payment amount for the duration of the contract. Contract Hire payment profiles are also available with a terminal pause (see below).

    Contract Hire jargon explained
    Spread rental

    Here is a spread rental Contract Hire example: 3-year term, 6 payments followed by 35. This means that you will be paying a total of 41 payments. A spread rental agreement summarises the first payment as 1 rental although it equates to 3 payments, hence the name ‘spread rental’.

    Terminal pause

    Here is a terminal pause Contract Hire example: 3-year term, 3 payments followed by 33. This means that you will be paying a total of 36 payments. A terminal pause rental agreement summarises the first payment as 1 rental although it equates to 3 payments and there is a ‘pause’ of 2 months at the close of the contract agreement. This example equates to 36 payments with a 2 month ‘payment holiday’ at the end of the agreement, hence the name ‘terminal pause’.

    Contract Hire FAQs
    What happens at the end of the Contract Hire term?

    Under the terms of a Contract Hire agreement, the vehicle is handed back at the end. There is a contractual obligation to make the vehicle available at the end of the term for inspection. Of course, it is impossible to return a vehicle without acceptable fair wear and tear such as small stone chips, and light scratches.

    Please click the following link that refers fair wear and tear and vehicle hand-back procedures.

    Leasing-Guide/Vehicle-fair-wear-and-tear-guide.html

    Leasing-Guide/Contract-Vehicle-Return-Policy.html

     

    What happens if I want to end the Contract Hire agreement?

    Early settlement terms and conditions are detailed on the agreement. The ‘norm’ is that no rebates are due if you wish to hand the vehicle back if you are less than 12 months into the agreement. After 12 months, settlement rebates may be available, usually varying between 20%-50% discount on outstanding rentals, plus outstanding excess mileage. Please refer to your agreement prior to signing as early termination can prove costly. 

    What happens if I go over the agreed contract mileage?

    Under the terms of a Contract Hire agreement, there will be an excess mileage clause, which documents excess mileage costs from the outset. Excess mileage is charged on a ‘pence per mile’ basis. If you settle the agreement early, mileage is aggregated and calculated accordingly. If you are under the mileage allowance, there is no refund unless you have a pooled mileage agreement which usually only applies to vehicle fleets of 5 or more.

    How does Contract Hire work

    To find out exactly how Contract Hire works, simply choose your vehicle model and configure your own quote on our website. All vehicles are available to quote on Contract Hire, with the quotation page giving you all the relevant information that is needed to gain a full understanding of what you are entering into, with the option to explore company car Benefit in Kind taxation and whole life running costs.
    The All Vehicle Contract’s website brings you and your business vehicle or fleet together with a fully interactive and cost-effective Contract Hire quotation. This includes all you need to prepare your very own instant online Contract Hire quotation, allowing you to choose the ideal vehicle and profile that suits you.

    Contract Hire or Leasing - which is the correct terminology?

    Contract Hire is often referred to as Leasing. Whilst this is a popular reference, a vehicle leasing agreement is not the same as Contract Hire; there are key differences.
    Vehicle Lease agreements in the U.K. are usually subject to a residual value, whereby the Lessee (the person who leases the vehicle) is responsible to the Lessor (the Owner/Finance Company) for the residual value amount.

    Alternatively, there may be what is termed as fully amortized, which is where the asset value is written down to a nominal figure over the lease period.

     

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