Business Contract Hire

Funder assumes risk

Contract hire is popular with:

All sizes of fleets able to reclaim VAT

How Business Contract Hire Works

With contract hire car finance, the leasing company calculates a residual value for a vehicle at a set age and mileage. and charges the user a monthly fee to cover depreciation over that periodand  a funding charge. There are also optional add-on services such as Motor Club and maintenance that can be added to the contract. . The user takes no risk in ownership and has predictable monthly costs. The user effectively just pays for the use of the vehicle. This is best likened to an extended car hire facility but for a number of years rather than a number of days.

Advantages of Business Contract Hire

• Cash flow: little or no initial payment with contract hire
• Costs are predictable and risk-free.
• Payments take into account the vehicles future residual value, so the user doesn’t have to repay the entire capital cost.
•  Currently vehicles are off balance sheet with this kind of business car finance.
• With contract hire, the administration and management burden can be transferred to a third party if taken with maintenance.

Disadvantages of Business Contract Hire

• Perceived inflexibility because costs are incurred for early termination due to the vehicle’s depreciation, condition and excess mileages, but these are similar to any other form of acquisition.
• Contract hire is not suitable for fleets with unpredictable mileage patterns.

Summary

Gaining volumes from hire purchase in particular, but also contract purchase. Overall, business contract hire is a convenient and hassle free car funding method - especially if you get a full maintenance package.

Significant motor manufacturerer support is usually reflected in the contract hire rentals. This coupled with the vat free purchase price to the contract hire company results in significantly lower costs to the user.