Contract hire (which is also known as leasing) is a form of finance that funds the use of the vehicle, but not the purchase of it. Business contract hire will be shown excluding VAT and personal will be shown inclusive of VAT. Of course, because it's a form of finance, you will be asked to complete a credit application form.
The monthly payment can vary depending on three things:
1. The number of miles you will drive in a year. If you need to increase your mileage limit, the monthly payment will go up.
2. The length of contract. Usually, a longer contract makes the monthly payment lower, but you should check because this is not always the case.
3. The amount you pay as your initial payment. More money up front reduces the amount payable each month.
Risks involved
You are responsible for the condition of the vehicle. If a vehicle is returned damaged, you will be charged for the repair. You can see what is classed as acceptable in our fair wear and tear guide.
It is also vital that you estimate your annual mileage as accurately as possible. If you return the vehicle having gone over the mileage limit specified in your contract, you will face an excess-mileage charge. Details of excess-mileage charges should be shown in your finance paperwork. There's more on how excess mileages work here.
Here's what a typical contract hire offer would look like:
- 3+35 10k £235 (inc VAT).
3+35: This means it's a three-year contract with an initial payment of three times your usual monthly rental. Therefore, you would pay £705 in the first month, followed by 35 regular monthly payments of £235. There's more on how contract hire terms work here.
10k:This offer is based on the car covering no more than 10,000 miles per year. It's a three-year contract, so the car must have fewer than 30,000 miles showing when the contract ends. If you cover only 8,000 miles in the first year, then the 'spare' 2,000 miles can be used over the next two years. There's more on how yearly mileages work here.
