As the most cost-effective and easily manageable form of car leasing, Business Contract Hire is one of the most widespread and popular ways of hiring a business vehicle. Over half of all new company cars registered are funded now this way.
Popular with various types of fleets, Business Contract Hire bears many different pros and cons tailored to business requirements and what may suit one business won’t necessarily suit all
However, the fact that Business Contract Hire often demands lower fixed monthly payments will most likely suit all.
There are many advantages to business contract hire, these include:
• Low Initial Payment: Unlike other forms of finance, typically business contract hire requires 3.6 or 9
monthly payments upfront. The higher the initial payment, the lower the monthly rental
• Fixed Monthly Costs: For a set monthly payment, your business gets the use of a vehicle for an agreed
duration and mileage that suits your needs. How much you pay each month will be determined by
a number of factors, including the type of vehicle, the purchase price of the vehicle, mileage, and the
estimated value of the car at the end of the contract (known as Residual Value). Therefore, the higher
the residual value of the vehicle, the lower the business contract hire monthly payments.
• Hassle free: For an additional monthly fee, the funder will take care of nearly every hassle associated with
vehicle ownership, whether it is maintenance, servicing, and/or temporary replacement vehicles.
• Free Up Capital: Business contract hire is an efficient way of running a fleet of vehicles. Rather than tying
capital up in depreciating vehicles the company is able to invest in other areas of the business.Vehicle
leases do not have to be shown on a balance sheet, which will improve a company's liquidity ratio,
gearing and return on assets.
• Flexibility: Running a fleet using business contract hire gives the company flexibility to respond to changing
market conditions. Business contract hire agreements are typically between 24 and 48 months long,
which allows the fleet to respond to changes to staffing requirements more efficiently than through
alternative funding methods. This flexibility can also help business’ respond to changes in their
Corporate Social Responsibility (CSR) guidelines,for example switching fleet vehicles to greener,
more fuel efficient models.
• Tax Advantages: 50% of the finance rental input VAT can be reclaimed and 100% of the service rental
(always seek financial advise with regard VAT)
Other things to consider before leasing a vehicle include:
Have an accurate idea of the vehicle’s annual mileage requirement, under estimate and you will face additional charges in the form of a excess mileage charge agreed at the start of the contract. Over estimate and you be paying a higher monthly fee than you actually need.
Unlike some forms of business car leasing, there is no option to buy at the end of the contract. Standard wear and tear is allowed and is agreed under the BVRLA Fair Wear and Tear guide.
Personal Contract Hire (PCH)
PCH is a product which has been especially designed for people leaving a company car scheme, or joining a new company that provides a company car allowance instead of a company car. This also includes individuals who receive a car or mileage allowance from their employee.
PCH is essentially the same as regular contract hire with the same benefits as described above, the main difference being that the individual cannot reclaim any VAT. With a PCH agreement the consumer takes control of a car for a contractual period, usually referred to as the ‘lease period’.
Though the car is in the consumer’s possession, it is not actually theirs to own. The vehicle is owned and registered to the finance company.
Instead as a consumer you make fixed monthly payments to the leasing company for the duration of the contract, when the contract expires you simply return the car to the leasing company and start a new lease on another new vehicle. As a result you never have to worry about resale values of the car – because you never own it, so you can simply return it and walk away.