Contract Hire and Leasing Explained
28 Apr, 2021
Contract Hire and Leasing Explained
If you are in the market to lease a car or a van, it can be a daunting task to distil all the car lease details, car leasing uk options, van lease deals, offers and terminology found on the internet. This article aims to help explain this flexible and appealing method of car finance and van finance. UK nationwide car lease deals are now some of the most prominent car finance offers advertised today, competing for your attention against other funding solutions such as PCP deals, hire purchase and personal finance and car loan options.
The fundamental difference between car and van leasing is, when compared to PCP and hire purchase car finance, there is no final payment option to take ownership of the vehicle. Leasing is generally available as a finance solution for both business and the individual; often referred to as personal contract hire, personal leasing or PCH. The fundamental benefit of car and van leasing is the depreciation value risk of the asset(s) is assumed by the leasing provider, not the customer.
Business Leasing, Business Contract Hire
This is a longer-term car rental agreement for businesses and business users. Not to be confused with the shorter-term car hire or van hire, business leasing is often a good funding solution for eligible sole traders, partnerships and limited companies ranging from sme all the way up to large conglomerates.
By entering into a longer-term van or car rental agreement, the business pays to rent the vehicle in monthly instalments. This eliminates the depreciation risk to the business and removes depreciating financial assets from the balance sheet. VAT registered businesses can avail of a 50% VAT reclaim for the car(s) supply, making the solution particularly attractive together with 100% for commercial vehicles on van leasing deals.
Despite often entering into a three-to-four-year agreement, annually renewing or, checking road and car tax with the DVLA tax office is not necessary as it is factored into the full duration of the contract. In addition, comprehensive maintenance plans are available, which includes car servicing, maintenance and tyres. The business has full peace-of-mind for the duration of the term.
At the end of the contract, cars and vans are returned to the leasing company, which takes ownership of matters relating to admin, disposal and remarketing. However, additional charges may apply if you have exceeded the agreed mileage limit. The vehicle must also be returned in accordance with fair wear and tear guidelines. Our advice is to maintain the vehicle well throughout the duration of the contract; keep it clean, stay up-to-date with servicing, regularly check your tyres, take care of removable or loose items such as the vehicle’s keys.
As you approach the end of the vehicle’s contract, look out for accidental damage, scrapes, dents and stone chips together with any interior damage. Once the end of contract terms have been satisfied, the business or user is free to take out a new car leasing agreement or explore other new car finance solutions.
Personal Leasing, Personal Contract Hire, PCH
This is a longer-term personal car rental agreement for an individual, not a business or business user. Often, personal users begin their car search journey online and will then search and explore traditional car finance funding solutions.
Some common examples include a car finance agreement via a manufacturer or franchise dealership. In addition, customers may also source another automotive lender or take out a more general retail car loan. Personal leasing or personal contract hire provides a modern and simplified approach to acquiring a new car.
Despite this fundamental and tangible benefit, the repayment structure is similar to other car finance deals and PCP deals:
- Make an initial advanced car rental (eg. 1, 3 or 6 months in advance)
- Monthly rentals are due over a fixed period of time (eg 36 or 48 months)
- Return the car at the end of the car leasing agreement.
The customer does not have an option to buy and this is the key factor in determining why the agreement is like a longer-term car rental contract. Because the leasing company will likely be dealing with the manufacturer partners on a scaled basis, another benefit of personal car leasing is that monthly payments could be lower than traditional car finance or PCP deals.
Our personal leasing business, Preferences, enables customers to customise their car, mileage and monthly budget based on their requirements, offering a fully-guided, hassle-free and easy-to-follow car leasing process. Personal car leasing packages can be configured to include maintenance packages with servicing, tyres, breakdown recovery and even MOT checks in the fourth year of the contract car.
Similar to the business contract leasing setup, there is no need to engage with the DVLA tax office as road and car tax payments and renewals are pre-built into the car leasing agreement. At the end of the contract, the car is simply returned and the customer can select a new personal contract leasing agreement without worrying about asset depreciation or having to perform a trade in or part exchange – a common part of the traditional car finance process. As with business car leasing, the personal contract car must be returned in accordance with fair wear and tear guidelines (detailed above) and excess mileage charges still apply.
If you would like more information on car leasing for business or personal, please get in touch with a member of the Fleet Financial Team.