Is Contract Hire Worth It?
What it is in plain English
Contract hire is a long-term vehicle rental agreement that allows you to use a van for a set period without ever owning the asset. It functions like a subscription service where you pay for the depreciation and usage of the vehicle rather than its total purchase price, removing the burden of selling it later.
How it works step by step
You begin by choosing the specific van you need and setting an agreed annual mileage limit based on your business requirements. Once the contract term is decided, you pay an initial rental followed by fixed monthly installments. At the end of the term, you simply return the van to the provider and have the option to start a fresh agreement with a brand-new model.
What you pay and what is included
Your monthly payments cover the use of the vehicle and are structured based on the vehicle cost minus its projected value at the end of the term. Many agreements include road tax for the duration of the contract, and you can often choose to bundle maintenance packages into your monthly cost to cover servicing, tyres, and general repairs, providing predictable cash flow.
Who it suits and who it does not
This method is ideal for businesses that want to keep their fleet modern, avoid the risks of vehicle depreciation, and manage cash flow with fixed monthly outgoings. However, it does not suit businesses that want to build equity in their fleet or those who cannot accurately predict their annual mileage, as excess mileage charges can accumulate quickly if you exceed the limit.
Questions to ask before you sign
Before committing to an agreement, you should clarify exactly what the excess mileage penalties are and how maintenance is handled if you choose not to bundle it. Ask how the vehicle condition standards are assessed upon return to ensure there are no surprise costs, and confirm if there are any options to adjust your mileage limit mid-contract if your business needs change.
FAQs
Is contract hire worth it for my business? Contract hire is worth it if you prefer predictable costs, want to avoid depreciation risks, and regularly need new vehicles. It is less suitable if you prefer asset ownership or have unpredictable driving patterns.
Do I own the van at the end of the contract? No, contract hire is purely a rental agreement. At the end of the term, you return the vehicle to the finance provider and do not have the option to purchase it.
What happens if I exceed my agreed mileage? If you exceed your annual mileage limit, you will be charged a pre-agreed pence-per-mile rate for every mile over the allowance. This is calculated at the end of the contract term.
Are there tax benefits to contract hire? For VAT-registered businesses, a portion of the VAT on monthly rentals can often be reclaimed, and the monthly payments can typically be offset against taxable profits as a business expense, though you should consult with your accountant regarding your specific circumstances.
contracthire.tv is a trading name of Swiss Vans Ltd, authorised and regulated by the Financial Conduct Authority (FRN 668283) as a credit broker, not a lender.