Suitability Explanation - A Customer-Friendly Guide to your Business Contract Hire
What is Business Contract Hire (CH)?
Contract Hire (CH) is mileage based agreement for the hire of a car or van for a fixed term usually between 2 and 5 years. You won't own the vehicle, and selling it isn't an option. The deal involves an initial rental payment, followed by fixed monthly rentals for the chosen hire period. At the end, you return the vehicle to the leasing company.
Is CH Right for You?
Yes, if you want a new car or van without the long-term ownership commitment but it won’t be a good fit if
- You want to own the vehicle as it’s a rental and returned to the finance company as the end of the contract
- Predicting your mileage is a challenge as it’s based on a pre-determined mileage which you choose
- You might need to end the lease early as terminating prematurely is costly
- You want to shorten the hire term by pre-paying
- You want to use it abroad extensively as there are restrictions
- Your business involves specific uses, like taxis and driving schools
Benefits of CH:
There’s lots of good plus points to CH
- Low initial cost, fixed monthly rental payments to suit you
- You choose the term of the lease (2-5 years) and mileage
- You can change the mileage if your mileage requirements change (check with us how frequently and when you can do this if this is important to you)
- Optional service, maintenance and repair plans for easy budgeting and you can reclaim 100% of the vat
- Road tax at the current rate is included during the lease
- Rentals are subject to vat and if you’re vat registered you can reclaim 50% or 100% of the vat subject to the vehicle usage
- Tax efficient as up to 100% of the rental costs can be offset against taxable profits
- No concerns about depreciation and disposal values
Responsibilities and Care:
- Comprehensive insurance is a must
- If the cost of road tax increases during the contract term, the finance company will charge you for the difference
- Prompt payment of fines and charges as if the bill lands with the funder, they’ll make an additional charge for their administration
- Service and maintain the vehicle according to the Manufacturer’s recommendations and keep it roadworthy. Use of genuine Manufacturer parts is a must and some funders require you to service and maintain at a main franchised dealer. Please check the terms and conditions of your finance agreement. If you fail to properly service and maintain the vehicle the funder will make a charge when its returned to them as this will affect its value. It’s worth exploring a cost effective service, maintenance and repair package for predictable costs but do bear in mind that the maintenance provider may decline to settle any charges if the total contract mileage is exceeded.
- Extra charges for exceeding mileage or missing items, such as both sets of keys, at return
- Non-payment may lead to contract termination and vehicle repossession.
Important Reminder:
- Only commit to a CH if you’re comfortable with the financial terms
- Make sure that you fully understand the agreement before entering into it
In a nutshell, CH can give your business great vat and tax benefits, and relieves the hassle of ownership and future disposal, but it comes with responsibilities.
Failure to make payments in full and on time may result in the contract being terminated and the vehicle repossessed. Only enter in to an agreement if you are comfortable with the financial commitment and terms.
