Contract Hire

Contract hire is the most common form of vehicle leasing agreement.

How does it work?

Quite simply, a contract hire agreement means that you agree to take control of the car for a fixed period. It is yours to drive until the end of the contract, but it is never yours to keep.

You will make fixed payments (normally on a monthly basis) for the duration of the contract hire period. At the end of the contract you will return the vehicle to the contract hire company.

Your contract hire payments are determined by a number of factors:

• Retail price of the car (the price you would pay if you were to but the vehicle outright)
• Residual value of the car – this is the estimated value of the car at the end of the contract hire period taking in to account depreciation, mileage etc

You will pay the difference between the above, and this amount will be spread across the contractual period.

 Advantages

• You never have to deal with selling the vehicle on – you simply return the vehicle and leave the re-sale work to the contract hire company
• You are able to drive a brand new car every couple of years
• If you want to budget with fixed monthly costs, then this package could be ideal for you
• Contract Hire is also the perfect solution for businesses as it allows them to update fleets regularly with the latest vehicles, avoid large down-payments and adjust fleet-size based on staff numbers

Disadvantages

• If you know that you travel a lot and that your mileage is likely to be high, the difference between retail value and residual value is likely to be significant, meaning that your monthly payments are also likely to be high.
• If you have a job where your mileage is difficult to predict, you may face additional charges if you exceed you mileage limit.

Hire Purchase car leasing companies

Hire Purchase is another common form of finance leasing where you are able to take ownership if the vehicle once all payments have been made.

How does it work?

Hire purchase combines elements of both a loan and a lease. It is a flexible package which allows you to agree an initial deposit amount, and then you pay off the balance in monthly instalments over an agreed period of time. At the end of period the vehicle is yours.

Unlike a lease or a personal contract purchase agreement, the residual value of the vehicle is not taken into account. Instead your monthly payments on a hire purchase agreement are determined by the retail price of the vehicle, the size of the deposit and the length of the contract.

 Advantages

• Hire purchase means that you can take ownership of a brand new vehicle without making one large financial outlay.
• This is a flexible package – the length of the contract and the deposit are agreed between you and the lender.
• If you can put down a large deposit, you could secure a 0% finance deal

Disadvantages

• If you cannot keep up to your monthly payments, your vehicle may be repossessed by the lender. You must make sure that the monthly payments are within your budget.
• Ringways Business Centre will always try to get you the very best deal, but interest rates may still be high.

Personal Contract Purchase

How does it work?

Broadly, personal contract purchase is the same as a personal contract hire agreement - but with one key difference.

At the end of the contract, there is an optional balloon payment that the individual can choose to pay in order to take ownership of the vehicle. This amount is determined at the outset and allows the driver to keep the vehicle if they are happy with it. However, it is not essential - on the contrary, as with a personal contract hire deal, you could choose to return the car to the leasing company and walk away.

Monthly payments are based on the difference between the retail value of the car and the residual value – i.e. the estimated future value of the vehicle after depreciation is taken into account. Therefore, the more the vehicle holds its value, the better your personal contract purchase deal will be as that will reduce your monthly payments.
Personal contract purchase is seen as a direct alternative to hire purchase and is subject to the protections set out in the Consumer Credit Act.

Advantages

• Fixed monthly instalments helping you manage your finances
• Only a small deposit is required
• If you wish to include the balloon payment at the end of the term you can choose to defer payments
• You have the option to refinance the balloon payment at the end of the term.

Disadvantages

• In order to determine the approximate residual value of the vehicle, the leasing company will need to set a mileage limit. This will be agreed between you and the leasing company based on the amount of travel you are likely to do, however if you exceed these limits there will be additional charges.

Finance Lease Car Leasing

How does it work?

Flexibility is one of the keys to success for any business, large or small. lf your business requires one or more vehicles but does not have the finance to pay for the assets, then a car finance lease could be the solution.

 A finance lease is a VAT-free method of financing a vehicle that is usually accessed by VAT- registered businesses and companies. It is tiered to businesses where a moveable asset (the vehicle) is purchased from a supplier - your business can then use this asset while paying an effective rental rather than a repayment.

The monthly rental is determined by the initial cost of the vehicle, the period of the finance lease and the residual value - that is the estimated future value of the vehicle at the end of the finance lease period once depreciation is taken into account.

You have full use of the vehicle during the finance lease period. Although you never take ownership, at the end of the finance lease contract a payment equivalent to the residual value is payable. Usually this means that the vehicle is sold and a proportion of the proceeds of the sale are returned to the lessee. Alternatively you could choose to pay the entire cost of the vehicle (plus interest) in monthly instalments.

Advantages

• Low monthly costs and initial outlay making this a flexible and highly affordable option for businesses
• You have a variety of flexible payment options. can make deferred payments, lowering the monthly rental with a balloon payment at the end of the contract, or you can pay the entire cost in monthly instalments.
• Up to 50% of the VAT payments can be reclaimed.
• The vehicle can feature as a company asset on your balance sheet.
• Hire rental tax allowances can be applied for

Disadvantages

• As a residual value is used to calculate your monthly rental, most finance lease companies will insist that you stick to a strict mileage limit as this mileage restriction is used to determine the future value.

Avoiding Penalty Charges For Excess Wear And Tear

Start preparations early - Order a copy of the BVRLA (British Vehicle Rental and Leasing Association) Fair Wear and Tear Guide at least 8 weeks before the end of your lease.

The aim of the guide is ‘to provide an industry-wide, accepted standard as to what constitutes fair wear and tear for contract hired and leased vehicles on their return'.
Every year the car leasing market faces a £120m bill for end of contract penalty charges. A large bulk of this is for excessive wear and tear. According to the latest research 37% of returned cars incur a fair wear and tear recharge averaging £231 .

Lease-end penalty charges are most commonly for:

• stains, rips, tears and burns on seats
• scratched or scuffed paintwork
• chips and dents on the bodywork
• damage to wheels and trims.

Start preparations early - Order a copy of the BVRIA (British Vehicle Rental and Leasing Association) Fair Wear and Tear Guide at least 8 weeks before the end of your lease.

The aim of the guide is 'to provide an industry-wide accepted standard as to what constitutes fair wear and tear on contract hired and leased vehicles on their return ‘.
Clean and dry your car thoroughly - You need to give your car a good clean first before conducting the assessment so that you can see any damage. You will incur penalty charges for retuning a car with excessive dirt, stains or odours, so it will require cleaning anyway.

- Consider having your car valeted professionally, especially if you haven't invested much time in cleaning it over the lease period.

- When assessing your car make sure the weather is good. The car should be dry and assessed in good daylight. If the car has raindrops on it, finding paint imperfections and dents will be nearly impossible.

- Be objective in your evaluation and take the opportunity to put right what could cost you more at lease return. A good checklist is essential for accurate evaluation.