The term contract hire refers to the personal or business contract agreement between a lessor and lessee of a vehicle. A contract hire agreement generally lasts for between 12 and 60 months and has become more and more popular over the last few years of economic struggle for emerging businesses.
Many companies choose to take advantage of contract hire agreements as they can be very useful to both individual employees and businesses. With almost every contract hire agreement there will be stipulations to which the company and the individual employee must adhere to, the most important and expensive of which is total mileage.
Within the last few years, business contract hire has become increasingly more popular, whilst personal contract hire has been decreasing in popularity. Many of the largest companies in the world have been curtailing their efforts in the personal contract hire schemes in favor of much more lucrative business contracts.
The total cost of the agreement will primarily be based on the depreciation of the vehicle over the course of the agreement. Other factors that will determine the premium will be the total length of the contract, the projected mileage over the course of the contract and any other services that have been agreed upon by the lessor and lessee.
The ownership of the vehicle will never leave the hands of the leasing company over the period of the agreement. The contract is, in effect, only to hire the vehicle for the time of the contract. Bearing that in mind, in most cases the user of the vehicle will have the option to purchase the vehicle, generally at its market value, after the contract has ended.
When a contract hire agreement is set up, it is also common for companies to make use of a maintenance agreement in which the lessor will be liable for any costs involved in general vehicle maintenance. This maintenance agreement can cover a variety of costs depending on what has been agreed on at the start of the contract. Generally, though, a maintenance agreement will cover general wear and tear including tyre wear and other consumables. An additional service of breakdown recovery could also be chosen.
It is possible for VAT registered businesses to recover 50% of the VAT paid on the vehicle. Other benefits include reduced administration, fixed interest rates, very low capital expenditure and absolutely no depreciation costs to account for.
There are very little drawbacks to a contract hire agreement; though, obviously, it will cost more in total if you are considering purchasing the vehicle at the end of the contract. For individuals, due to the recent economic downturn, it has been an increasingly more popular way of having your own transportation, especially if you enjoy having a new car every few years!
