A Quick Guide to Understanding Contract Hire

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Car hire/leasing is the most cost-effective way of driving a car without having to buy it at showroom prices.


There are two common types: personal and business. A business contract is between two trading companies. A personal contract means you’ll be able to drive it for a set period of time and simply hand it back to the leasing company without the worry of selling it on for a fraction of the price you paid. It is the best way to avoid depreciation. This is how contract hire works:


Start of the contract (Initial Rental, Contract Term and Annual Mileage)

At the start of the contract an initial rental will be charged to commit yourself to the car, so make sure the car you choose is the one for you. The fee could be a set amount or multiples of the monthly rental. This is normally 3 times or 6 times the monthly rental cost of the car.

This is usually displayed as 6+23 (6x monthly rental cost as your initial payment followed by 23 monthly payments).

Next, you set the contract term. This is the period of time you want to take the vehicle over. This is normally taken over 24, 36 or 48 months.

Lastly, you will need to agree with the finance company what annual mileage the vehicle is expected to do. In most cases, this can be amended during the contract if your circumstances change.




Middle of the contract

During the term of the contract, it’s relatively plain sailing. The vehicle should be serviced as per the manufacturer’s guidelines, otherwise you risk paying a penalty charge when the vehicle is returned.


End of the contract (What happens with your car)

At the end of the lease agreement the car is to be given back to the hire company.

All of the major finance companies adhere to the British Vehicle Rental And Leasing Association’s (BVRLA) Fair Wear & Tear guide. This means that only genuine damage is charged. Light scratches, stone chips and small scuffs to the wheels are all deemed to be acceptable.

Naturally, if the vehicle is damaged beyond “Fair Wear & Tear” the driver is liable for the damage. However, if the vehicle is kept in good condition the leaser will be free of additional charges and the return of the car will be quick and easy.


And there you have it – A Quick Guide to Understanding Contract Hire.

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