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FinanceAcar: Home »car finance options » Contract Hire Explained

Business Contract Hire

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:

  1. 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);
  2. 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;
  3. 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’);
  4. There is no need to arrange or negotiate to sell the vehicle when a new one is required;
  5. 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;
  6. The business can select the exact requirements online and have them delivered;
  7. 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;
  8. The business can include all maintenance and services in the monthly price;
  9. 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,
  10. 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:

  1. The business is limited to the annual mileage chosen upfront, over and above which excess mileage fees will be incurred;
  2. Contract cancellation incurs penalty fees (which should be determined before the contract is signed; and,
  3. The vehicle can not be modified for any particular business purposes.



So Quick!! Quick to compare the cheapest prices. Quick to get the paperwork done. Quick to deliver the car… The only delay was the backlog with the manufacturer.
Amanda Johnson,Manchester