Contract hire is essentially the long-term rental of a vehicle, normally with the addition of a maintenance and repair plan at a fixed monthly cost.
The mileage the vehicle will be driven is usually pre-agreed, with a penalty fee charged per additional mile.
The vehicle remains the property of the lease company throughout the length of the lease term, and is then returned to it.
Contract hire is particularly popular with VAT registered companies as they can claim a proportion of the tax back (see 'Financial implications').
Companies also enjoy the ability to be able to predict monthly budgets because of the fixed costs, the need for only a minimal upfront deposit and the fact that they are not exposed to any risk of the car depreciating in value.
It is also possible for individuals to take out Personal Contract Hire (PCH) deals, which are operated on similar terms (see Private Buyer's Options).