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.
The country should be a wsh with low interest rates as the Bank Of Englands standard rate is still the lowest it has ever been, but motorists are struggling to find low rates when it comes to buying a car, according to the Mail On Sunday. the best rate they could find was 8%+ in order to buy that dream car. The bansk still do not want to lend money for a purchase that will just depreciate, they are expecting a high dpeosit also. This of course is hurting the retail arm of used and new cars as few people have the cash to buy outright.
The motor car is normally the second most exensive purchase you will make and so many financial experts believe if you can get a contract hire on a low interest rate, then it makes sense not to have to worry about resalesbale value and let the dealership have this responsability. Of course contract hire is also a finance agreement, so often is directly related to the availability fo finance. As officially we are supposed to be out of reccession, the worry is that interest rates rise not get less, so we need to keep an eye on how it will affect retail sales and the contract hire market.
We can see great deals out there in the contract hire market with residual values pushing down monthly payments, but even when a great car lease deal is found there still seems to be a stumbling block for some, that is getting the deal underwrtitten. Finance companies have removed some of the barries to finance in recent months but we are stil finding a high decline rate. One contract hire broker suggested that only 50% of business actually gets underwritten, meaning twice as much work for the same return. Clearly the credit crunch is affecting some businesses in other ways, even though there is a healthy demand to lease these cars and for some makes the scrappage scheme has not benefited them as much as some korean cheaper made cars have.
It is a shame it is not possible to get the finance first then look for a contract hire deal afetrwards a bit like how we often buy a car with a bank loan. First get the loan then go out with cash to buy the car. The result is sometimes contract hire companies make a financial decision on clients before deciding how much support to give with their purchase if they feel the deal will be scuppered with the underwriting at the end.
Redundancy and the need for change and an argument that there will not be enough driving instructors around in the future, if the current trend of learning to drive continues even with the current finacial crisis, has resulted in a huge increase of schools offering driving intructor courses. In order to deliver a professional image, it is usual for such schools to choose contract hire, to finance the running of what can be a substantial amount of vehicles. In the long run contract hire can work out more expensive, but the fact that new cars car be aquired quickly and the fleet of cars are renewed every 3 years, makes contract hire an atractive option for driving instructor schools.
Clearway offers driving instructor training in Cleveland, it has arround 20 cars all on contract hire, which means the brand is effectivly presented and any student passing his exams wishing ton stay with Clearway as an instuctor can get the same car on contract hire in the same colour and use the signage of the cars, without the need for buying. This is a way of getting students to business in the quickest possible time and so maximise the profits of a new business in it’s initial years.
The car of choice for the Clearway group is currently the Citroen c3, branded in blue. These C3’s are all purchased using contract hire and are fully mantained to ensure the business keeps going in times of servicing or breakdown.