A personal contract hire is a type of long-term rental that allows individuals to acquire vehicles conveniently and cost-effectively. It is a great option for motorists who prefer to change cars every couple of years and find outright vehicle purchases unaffordable.
In contract hire leasing, the individual (lessee) leases the car for a certain time period (1 year- 5 years) and makes fixed lease payments on a monthly basis. At the end of the lease term, the lessee has the option to return the vehicle or buy it. The lease payments will include VAT, which the lessee cannot reclaim. It is claimed back when the lease company purchases the vehicle.
The benefits of personal contract hire leasing include the flexibility to plan budgets more easily owing to the fixed monthly fee. The monthly installments will include the maintenance costs associated with the vehicle.
The lessee doesn’t have to worry about ownerships risks as the leasing company owns the car even during the contract term. The lessee does not have to deal with hassles related to vehicle disposal or sale, which is not the case when the vehicle is purchased. The vehicle’s depreciating value over time is also not a concern for the lessee.
Business contract hire is a form of leasing which works much like a long-term rental. Here, the leasing company provides the business with a car, van or multiple vehicles in return for a fixed monthly payment. One of the contract terms will be the allowance on mileage allowed on the leased vehicles.
Businesses can choose a lease term extending from a year to up to five years. At the end of the lease term, the vehicle(s) can be returned and new ones can be leased. Business contract hire allows businesses to stay competitive in terms of motoring costs and plan their budgets better. Besides monthly lease payments, business will only be required to buy insurance and pay towards fuel costs.
Business contract hiring also offers businesses significant tax advantages. When a company buys a car, then the vehicle is viewed as a company asset and taxed. The costs of acquiring vehicle thorough a contract hire are not viewed as balance sheet costs and not tax liable.
As the leased vehicles are covered under factory warranty, the associated repair and maintenance costs are also less. The costs benefits of contract hire have made this a much preferred leasing option for many businesses.
A contract hire lease allows businesses to acquire even expensive vehicles at lower costs. The costs of purchasing multiple delivery trucks or cars can cost a business a small fortune. Contract hire is a great way to source multiple vehicles and stay cost competitive.
In a contract hire, lease monthly payments are made to the leasing company. These payments are smaller than the loan payments the business would have to make if it had purchased the vehicle(s).
Contract hiring is a hassle free leasing option that frees businesses from taking on the risks of buying and running their car or van fleets. Businesses don’t have to deal with the depreciation risks that an owned vehicle brings. The hassles and risks of vehicle disposal are taken care of by the leasing company. The company may charge businesses a disposition fee in lieu of this and the costs of selling the returned vehicle.
The costs to finance the vehicle are less as the leasing company recovers the value added tax (VAT) on the vehicle. This saving is reflected in the monthly lease payments. An understanding of the benefits of contract hire lease can help new businesses manage their costs better and prevent an unnecessary outflow of cash.
Businesses opting for a contract hire lease should keep in mind the terms and conditions that such a lease contract stipulates. The terms can be negotiated only when the lease is initiated and not upon signing it or in to the lease term.
The lease term is fixed and the only way to get out of the lease early is by paying a termination charge. The termination fee charged varies between different leasing companies. The mileage allowance set for the particular vehicle make and model is also fixed. Exceeding the mileage allowance laid down by the contract hire lease contract attracts a charge. In fact, a charge is levied for every mile exceeded. Businesses have to keep this in mind to ensure they don’t rake up costs at the end of the lease term.
The contract hire lease contract can come with a maintenance or non maintenance clause. In the latter, all vehicle damages have to be taken care of by the lessee. Some leasing companies also offer vehicle car breakdown coverage as part of the leasing contract. The businesses leasing the vehicle(s) should take care to maintain them well and in accordance with the automaker’s servicing schedule.
It is important that a business opting for a contract hire lease understands the many aspects of such a lease. Here are some things a lessee should consider when going for a contract hire.
The tax relief that businesses can get is impacted by the CO2 emissions of the leased company cars. A restriction of 15% is levied for cars acquired through contract hire lease that have emission figures of above 160g/km. This comes under the high carbon emission category and therefore offers less tax benefits to the lessee. So, the running costs associated with leased vehicles that have CO2 figures of over 160g/km are more. No such restriction is imposed on leased vehicles that have CO2 figures of under 160g/km.
Businesses have to insure the car or truck in accordance with the requirements laid down by the leasing company. For a leased vehicle that is written off due to any reason, the lessee may have to pay the difference amount between the book value of vehicle (as determined by the leasing company) and the insurance company payout.
Vehicle maintenance is another important aspect that businesses should keep in mind. A leased vehicle that is returned in a damaged condition will attract a charge.