An In-Depth Look at Vehicle Contract Hire: Costs, Benefits, What to Expect, and More

Vehicle image | An In-Depth Look at Vehicle Contract Hire: Costs, Benefits, What to Expect, and More | There is no doubt that more drivers today are opting for vehicle contract hire or lease agreements, and the shift can be attributed to the fact that more people are seeing the benefits of such a deal.

It is indeed beneficial not just to your finances and budget, but also to your peace of mind. You can get convenience if you choose your contract hire deal wisely, and you can also do away with worrying about the vehicle’s depreciation because you will simply give it back at the end of the contract term. But what else should you know about car leasing or contract hire agreements? Here’s an in-depth look at vehicle contract hire: costs, benefits, what to expect, and more.

Its definition

There are several types of vehicle lease agreements in the UK, but contract hire is by far the most popular kind of agreement with UK drivers. As a lessee or user, you can hire a vehicle for a certain period and at a mileage limit that is determined at the beginning of the contract, and in return, you just have to pay a monthly fee.

How it works

With contract hire, you don’t have the option to purchase the car at the end of the lease and will simply return it to the leasing provider who will review it for its condition and the driven mileage. The monthly rental will take into account the total cost of the vehicle, including its registration fees and road tax, and it will also consider its use period and the mileage you have agreed upon, along with the costs of funding and the vehicle’s predicted residual value (the vehicle’s estimated total value once the contract ends). 

Your options on contract hire agreements 

Here’s what you can expect with a standard contract hire agreement, as confirmed by contract hire specialists like Diamond Contract Hire: the minimum or initial payment for a contract is three months of rental fees for the vehicle, and this is paid in advance. 

The rates for contract hire are usually computed over two years, three years or up to five years, and these will be advertised as three months + 23 months, three months + 35 months, and so on. As already mentioned, you will usually have to pay three months of rental in advance. Contract hire agreement rates will be subjected to VAT at the 20% rate, but if the vehicle is to be used for business and not privately, you can reclaim 100% of the VAT on the vehicle. If you will use the vehicle privately, then you can reclaim about 50% of the VAT.

If you opt for maintenance and servicing along with the contract hire package, then a total of 100% of the VAT on servicing can be reclaimed as long as it is separately supplied and identified.

The benefits 

If you have a business and opt for contract hire, this eliminates most of your risk when it comes to running your business vehicles, and you have no risk when it comes to vehicle disposal, either. Contract hire also comes with a fixed cost per month, which allows you to budget more easily and doesn’t drain your cash flow.

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