Contract Hire vs Lease Purchase — What's the Difference?

Both products let a business get a vehicle without paying the full price up front, so they are often confused. The difference is what happens at the end. Our how it works page explains contract hire in more detail.

The key difference: ownership

With contract hire, you rent the vehicle for a fixed term and hand it back at the end. You never own it.

With lease purchase, you are working towards ownership. You make regular payments, usually followed by a final payment, and then the vehicle is yours.

Monthly costs

Contract hire monthly payments are usually lower, because you are only paying for the part of the vehicle's value that you use. With lease purchase, you are paying off the whole vehicle, so the monthly payments are typically higher for the same vehicle and term. That is not a like-for-like comparison, because at the end of lease purchase you own an asset and with contract hire you do not.

VAT

VAT is treated differently:

• Contract hire: VAT is charged on each monthly rental, and a VAT-registered business can usually reclaim it as it goes, subject to the usual rules on private use.
• Lease purchase: VAT is usually charged on the full price of the vehicle at the start, which can affect your cash flow, even if it can be reclaimed later.

The rules depend on the type of vehicle and how it is used, so speak to your accountant.

Balance sheet treatment

How each agreement appears in your accounts can differ, and the accounting rules have changed over the years. We are not accountants, so please ask yours how either option would be treated in your business.

Who each suits

Contract hire suits businesses that:

• want a fixed monthly cost and no resale risk
• like to change vehicles every few years
• would rather keep cash free

Lease purchase may suit businesses that:

• want to own the vehicle at the end
• plan to keep it for many years
• are comfortable carrying the resale and depreciation risk

Which should you choose?

If you want use rather than ownership, contract hire is usually the simpler and lower-cost option. New to the idea? Start with what is contract hire. When you are ready, compare our latest deals.

Swiss Vans Ltd is authorised and regulated by the Financial Conduct Authority as a credit broker, not a lender. FRN 668283.