Contract Hire FAQs: Your Questions Answered
What it is in plain English
Contract hire is a long-term vehicle rental agreement where you pay to use a van for a set period without ever owning it. You simply make regular monthly payments to enjoy a brand-new vehicle, returning it at the end of the term. It removes the stress of depreciation and resale, making it a popular choice for businesses.
How it works step by step
The process begins by selecting the van that fits your business requirements and defining your annual mileage limit. You then choose the term length, typically ranging between two and four years. Once the initial rental and monthly payments are agreed upon, you take delivery of the vehicle, using it exclusively until the contract expires and the van is returned.
What you pay and what is included
Your monthly payments cover the cost of using the vehicle, while optional maintenance packages can be added to include servicing, tyres, and repairs. Road tax is usually included throughout the term, though you remain responsible for insurance and fuel. Because you do not pay for the full value of the van, your monthly costs remain predictable and manageable.
Who it suits and who it does not
Contract hire is ideal for VAT-registered businesses that want to keep capital expenditure low and simplify fleet administration. It is less suitable for those who want to own their vehicle at the end of the term or those with unpredictable mileage, as going over your agreed limit can result in excess mileage charges upon return.
Questions to ask before you sign
Before committing, clarify the specific mileage limits and the cost per mile if you happen to exceed them. Ask if your agreement includes a maintenance package to handle unexpected repair bills. Furthermore, check the fair wear and tear guidelines provided by the leasing company to ensure you understand exactly what condition the van needs to be in when you return it.
Frequently asked questions
Most customers ask about the potential for early termination if their business needs change suddenly. Another common query relates to the end-of-contract process, specifically how an inspection is performed to assess the condition of the returned vehicle compared to the start of the lease.
FAQs
What happens at the end of a contract hire agreement? At the end of your contract, you simply return the vehicle to the leasing provider. They will perform a vehicle condition inspection to ensure it meets the fair wear and tear standards agreed upon in your contract.
Can I buy the van at the end of the contract? No, contract hire is strictly a rental agreement. Because you never own the vehicle, there is no option to purchase it at the end of the term.
What occurs if I exceed my mileage limit? If you drive more miles than agreed upon in your contract, you will be required to pay an excess mileage charge, which is calculated as a pence-per-mile rate determined at the start of your agreement.
Is insurance included in my contract hire payments? No, contract hire payments typically cover the rental of the van and road tax, but you are responsible for arranging your own fully comprehensive commercial insurance policy.
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