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What is Business Contract Hire?

Business Contract Hire is a type of vehicle leasing arrangement commonly used by businesses and individuals to acquire a vehicle for a fixed period. In a Business Contract Hire agreement, the individual or business (referred to as the lessee) enters into a contract with a funder (referred to as the lessor) to lease a vehicle for an agreed-upon term, typically ranging from 2 to 5 years.

Under a Business Contract Hire agreement, the lessee makes fixed monthly payments to the funder for the use of the vehicle. These payments cover the vehicle’s depreciation and the leasing funders service costs. The lessee does not own the vehicle during the lease period and must return it to the lessor at the end of the contract.

Key features of Business Contract Hire Include:

  1. Low Initial Outlay: Initial rental payments (deposit amounts) can be as little as one monthly rental in advance or up to 50% of the vehicles cost.
  2. Road Tax Included: Initial and annual road tax is included for the duration of the agreement.
  3. No Ownership: The customer does not gain ownership of the vehicle at any point during the lease term. Instead, they have the right to use the vehicle for the agreed-upon period. There can be specific Tax gains for business with business contract hire agreements.
  4. Fixed Term and Payments: The lease term is fixed, and the monthly lease payments remain constant throughout the contract, simplifying budgeting and financial planning.
  5. Maintenance and Service Packages: Many Contract Hire agreements include maintenance and servicing packages, providing convenience and peace of mind to the customer as the funder handles vehicle maintenance. Maintenance agreements are available at an additional monthly charge.
  6. Breakdown & Replacement Vehicle: Optional breakdown cover and replacement vehicle cover is available at an additional charge.
  7. Mileage Limitations: Contract Hire agreements often come with mileage restrictions. Exceeding the agreed mileage may result in additional charges at the end of the lease. Excess mileage charges are detailed in both the quotation and the finance agreement.
  8. End-of-Lease Options: At the end of the contract, the customer can return the vehicle to the funder and potentially enter into a new lease for a different vehicle. *Some agreements may offer the option to purchase the vehicle at a predetermined price.

Business Contract Hire is popular for businesses that need a fleet of vehicles, as it allows them to maintain a modern fleet without tying up substantial capital in vehicle ownership. Additionally, individuals often choose Contract Hire for personal use to drive a new car or van without the burden of ownership and concerns about depreciation.

Concerns of Business Contract Hire:

Business Contract Hire, while offering several benefits, also comes with some concerns and potential drawbacks that individuals and businesses should consider before entering into such an agreement. Here are five concerns of Business Contract Hire:

  1. No Ownership at the End: At the end of the contract, the customer does not have the option to own the vehicle. This means that all the payments made during the lease term do not contribute towards building equity in the asset.
  2. Mileage Restrictions and Charges: Contract Hire agreements typically come with mileage limitations. If the customer exceeds the agreed-upon mileage, they may face additional charges, which can add to the overall cost of the lease. Excess mileage charges are outlined in quotations and finance documentation.
  3. Wear and Tear Charges: When returning the vehicle at the end of the lease, the customer may be responsible for any excessive wear and tear beyond normal usage. These charges can sometimes be subjective and might result in unexpected costs. most funders adhere to the BVRLA Fair Wear & Tear guide.
  4. Early Termination Penalties: If the lessee wants to end the contract before the agreed-upon term, there are usually early termination penalties. These charges can be substantial and can make it costly to exit the lease early.
  5. Impact on Credit Score: Failure to meet the monthly lease payments can negatively affect the customer’s credit score and could have consequences for future borrowing.
  6. Customer Maintained Contracts: Should you choose a customer maintained agreement, The running costs of the vehicle are your responsibility. This would include vehicle maintenance and servicing, tyres and wear and tear.
  7. Not Available on Used Vehicles: At present, we are unable to provide Contract Hire agreements on used vehicles.
  8. Motor Insurance: It is the responsibility of the customer to ensure the vehicle is adequately insured with a comprehensive motor insurance policy.

All new vehicles are supplied with a manufacturers warranty. To avoid invalidating the warranty the vehicle is required to be services and maintained strictly in accordance with the manufacturers guidelines. These guidelines are outlined within the vehicle handbooks (or online portal) and also the manufacturers website.

It’s crucial for individuals and businesses to carefully review and fully understand the terms of the Business Contract Hire agreement before committing to it. Comparing different lease offers, negotiating the terms, and assessing the total cost over the lease term are essential steps in making an informed decision that aligns with the lessee’s financial capabilities and requirements. Seeking professional advice can also be helpful in understanding the implications of the lease agreement and avoiding potential pitfalls.

Within New Vehicle Solutions Limited there are a number of finance options we are able to provide. Based on our discussions and your responses to our questions we will have narrowed down this selection to the one that may be most appropriate given your personal circumstances and requirements. We do however believe it is important that in making the decision you are aware of all finance options we have available (some of which may not be applicable in your particular circumstances) and have relevant information on the options available. Further information on the types of finance options we are able to offer can be obtained from organisations such as the Finance and Leasing Association or the Money Advice Service Details of alternative finance options and their explanations will be provided to you as part of our Initial Disclosure Terms of Business document.

Any agreement for vehicle funding will be completed without advice and based on your explicit instructions.

Registered Office:

New Vehicle Solutions, Tremains Road, Bridgend, South Wales, CF311TZ
Company Registration Number: 8572112 – VAT Number: 166595858 

New Vehicle Solutions Ltd is authorised and regulated by the Financial Conduct Authority, our firm reference number for consumer credit is 685872 New Vehicle Solutions Ltd is an Appointed Representative of AutoProtect (MBI) Limited which is authorised and regulated by the Financial Conduct Authority for Insurance Mediation, their reference number is 312143.

We are a credit broker and not a lender.
We are permitted to conduct Credit Brokering, Debt-Adjusting and Debt-Counselling in connection with the whole or partial settlement of credit agreements for vehicle finance and consumer hire agreements.

New Vehicle Solutions Limited does not and will not charge any fees for providing any Consumer Credit services. 
Some of our lenders may charge administration fee’s to set up your agreement. 

Whichever lender we introduce you to, we will typically receive commission from them (either a fixed fee or a fixed percentage of the amount you borrow). The lenders we work with could pay commission at different rates. However, the amount of commission that we receive from a lender does not influence the amount that you pay to that lender under your credit agreement. Any renumeration amounts can be requested by emailing [email protected] prior to the conclusion of the transaction. Our aim is to secure finance for you at the lowest interest rate you are eligible for from our panel of lenders. 

Error and Omissions Excepted.

Last Updated: 01/08/2023

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Page Last Updated: 17/10/2023
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