As if the world of contract hire and leasing wasn’t confusing enough, it seems as if there is virtually no end to the names applied to what are, in reality, very similar financial solutions. Car Leasing Plus are here to try and help take the confusion out of terms like contract car hire, so you can make an informed decision on how to finance or lease your next vehicle. So what is contract car hire? The simplest way to put it is simply that it’s another name for the most common form of leasing agreement; now, let’s take a look at what that means in practice.
The Financing
In terms of the actual financing, contract car hire is actually rather straight forward and can be broken down into 3 constitutional parts that regulate how much you will pay, and these are;
The car’s initial cost – that is, the price-tag that the dealer slaps on the windows in the showroom;
The car’s estimated resale value – this is calculated by the leasing firm, and will be based upon the make, model, length of lease, and your estimated mileage for the period; and
Your initial payment – contract hire car agreements involve an initial payment (which is variable) as well as monthly instalments, and the more you pay as an initial payment the lower your monthly charges will be. Remember to do the maths on these, including interest you could earn if you stuck the extra money in a tax-free ISA (or your preferred type of investment) rather than increasing your deposit, and weigh that against the lower monthly payments. In some cases it may be wiser to keep your initial payment lower, but in most cases it makes sense to increase it if possible – to a limit, of course.
The Good
As with anything, there are pros and cons to contract car hire as opposed to purchasing, and for some people it will make more sense to buy. Therefore it is important that you’re aware of the ups and downs of contract car hire as a financing solution, and don’t just rush into it because it sounds like a sweet deal. Some of the key advantages are:
You don’t have to worry about depreciation and resale price, as this falls on the leasing company;
Depending on your agreement servicing may be included, which means that you don’t have to worry about unforeseen expenses should your car break down at any point during your leasing period;
You may be able to afford a nicer or newer car than you would otherwise have the budget for; and
Because you’re usage is limited to an agreed number of miles for the period, and assuming you opt for a full service leasing deal, you know in advance exactly what you expenditure will be, thus budgeting becomes a breeze
The Bad
The most common reasons why leasing is not for everyone includes:
You are limited in the number of miles you drive, and will incur extra charges if you surpass these limitations;
You don’t own the vehicle, meaning that you have obligations towards a third party; and
You will have to return the car to leasing company at the end of your agreed period, regardless of how much you love it!
