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Business Contract Hire - Car Lease Guide
You have probably already heard about business contract hire as a form of vehicle acquisition. But is it the right option for you and your business, as a sole trader, SME or larger organisation as a way of funding a fleet?
Contract Hire is ideal for all types of companies, including partnerships and sole traders, that are VAT registered. The popularity of leasing has grown significantly over the years and it is now the most popular form of funding cars and commercials for business users.
Business Contract Hire | Explained
Contract Hire is an agreement between an individual or a company to ‘hire’ a vehicle over a pre-agreed fixed term. There is an annual mileage limit and clients can choose to take out a maintenance agreement if they wish.
At the end of the contract, the vehicle is returned to the funder and the client is free to take out another lease vehicle or take a different motoring journey. There is no option to buy the vehicle when it goes back.
Contracts are usually known as ‘Spread’: this means that the first payment of, say, 6 monthly rentals, is classed as month one. This is followed by 23 for a 2-year term contract or 35 for a 3-year contract (hence the term ‘spread).
A ‘Terminal Pause’ contract has a payment ‘holiday’ at the end of the contract that is equal to the number of payments out down at the start of the lease. This allows for the client to ‘save’ for the first payment of the new vehicle that they wish to replace their current one with. Terminal Pause contracts are rarely advertised nowadays but are available upon request and are still a popular choice with larger fleet operators.
Benefits of Business Contract Hire
- Fixed cost motoring that allows for accurate budgeting
- Tailored contracts to suit budget and requirement on new vehicles
- New vehicles benefit from modern technologies that help reduce fuel costs and increase safety
- Low initial outlay compared to some other forms of vehicle funding, typically between 3 and 9 payments in advance, payable at the start of the contract
- Flexible solutions for contract terms to suit requirements, typically between 1 and 4 years
- 50% of the VAT can be reclaimed on the monthly rental amount for VAT registered companies
- 100% of the VAT can be reclaimed on the monthly service and maintenance element
- Servicing and maintenance packages are available to help fix the total cost of motoring (not inclusive of fuel and insurance)
Business Contract Hire Quotations
It is important to compare quotations on an ‘overall cost’ basis as more payments that are put down initially reduce the monthly cost. Fewer payments will increase it. In the unlikely event that you feel our advertised price has been bettered by a different company, ask one of our Team about our ‘Best Price Guarantee’.
Business Contract Hire | Frequently Asked Questions FAQ’s
Will I get charged for damage when I return my car?
If you have looked after your vehicle and returned it free of damage then the answer is no. Customers have an obligation to make their vehicles available at the end of the term for inspection. Acceptable fair wear and tear such as small stone chips and light scratches are taken into account by the funder, also keeping in mind the client’s annual mileage.
Please don’t hesitate to ask one of our Team for a copy of our fair wear and tear and vehicle hand-back procedures – it varies from funder to funder and we will be happy to send across the details to you by return for your perusal and total peace of mind.
Can I cancel my Business Contract Hire agreement?
Early settlement terms and conditions are detailed in your contract hire agreement. Usually, there is no rebate allowance if you decide to hand the vehicle back less than 12 months into any agreement. After 12 months, rebates may be available, but policies will vary from funder to funder. Please speak with a member of our team regarding this concern or refer to your agreement before signing as early termination can sometimes be costly.
If you require a flexible agreement, Business Contract Hire may not be the ideal option for you, mainly due to the way it is calculated and how the monthly rentals are worked out based on forecasted vehicular depreciation ‘sliding scales’.
Will I get charged if I exceed my agreed contract mileage?
Yes. There will be a pre-agreed excess mileage clause from the outset. Excess mileage is charged on a ‘pence per mile’ basis. If you are under the mileage allowance, there is no refund unless you have a pooled mileage agreement which is usually only for larger fleets.
Taking out a higher mileage contract is not usually as costly as you may think, however, so if you do more than ‘average’ miles, please don’t hesitate to request a bespoke quotation from Egon Car Leasing – you will not be ‘penalised’ by a leasing company for travelling more than 10k miles per annum any more than if you owned a car outright.