Business Contract Hire
is a form of car leasing for businesses
. It is an ‘operational lease’ that allows a business to lease a company car by simply making a fixed monthly payment for a period that is typically between 2 and 4 years.
At the end of the lease contract, the business returns the old company car and obtains a new car and lease contract. Occasionally, here may be an opportunity to purchase the vehicle at the end of the period if done through a third party.
Advantages of Business Contract Hire
Business Contract Hire is a popular option for businesses because:
- Contract Hire frees up cash instead of investing it in a non-core depreciating asset since there is a smaller initial payment required (the equivalent of only 3 months payments upfront);
- It avoids having the asset on the balance sheet and avoids financial risk as the business is not committed to the entire cost of the vehicle;
- The business spends significantly less each month (as much as 60%) than it would need to spend on a loan or ‘hire purchase’ (it gets a ‘bigger bang for its buck’);
- There is no need to arrange or negotiate to sell the vehicle when a new one is required;
- There is no market value risk arising from the vehicle because it does not need to be sold in the open market at any point;
- The business can select the exact requirements online and have them delivered;
- It is certainly cheaper than ownership over the long term if the business needs to run and replace new vehicles more frequently than every five years or less;
- The business can include all maintenance and services in the monthly price;
- The road fund licence will always be included for the first year of the lease contract and often for the life of the contract; and,
- Vehicles can be kept relatively new and this promotes a positive, successful image of the business
Disadvantages of Business Contract Hire
Compared to a business loan or buying the vehicle for cash:
COMPARE BUSINESS CAR LEASING DEALS & GET CONTRACT HIRE QUOTES.
- The business is limited to the annual mileage chosen upfront, over and above which excess mileage fees will be incurred;
- Contract cancellation incurs penalty fees (which should be determined before the contract is signed; and,
- The vehicle can not be modified for any particular business purposes.