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If you’re considering buying a new van for your company, you are spoilt for choice by the various finance options available. However, one of the most consistently popular choices is contract hire – because it often proves the most cost-effective and the easiest to manage. So how do contract hire agreements work? This guide to contract hire will explain.
Ford, Transit 300 MWB Diesel Fwd
High Roof D/Cab Van Trend TDCi 125ps
Business Price
£296.39 + VAT
Personal Price
Call us
per month (36 months)
Business Price
£296.39 + VAT
Personal Price
Call us
per month (36 months)
All pictures and/or photos and car descriptions on this site are for illustration and reference purposes only and are not necessarily the vehicle on offer. All offers are subject to change at any time and are subject to finance approval and vehicle availability. All prices correct at time of publication. E & OE.
What is contract hire?
Whenever you hear the term ‘car leasing' or 'van leasing’, chances are that it is referring to contract hire as it is the most common form of vehicle leasing agreement.
Basically contract hire means agreeing to take control of a van for a fixed period – it’s yours to drive but it is never actually yours to own. Instead you reach an agreement with the leasing company to make fixed payments (usually monthly) for the duration of the contractual period. At the end of the contract you return the van to the contract hire company.
Your contract hire payments will be determined by a number of factors. Firstly, there is the retail price of the van – that is the price you would have to pay if you were to buy it outright. Then, there is the residual value of the van – that is it’s estimated worth at the end of the contract taking into account depreciation, mileage, etc. You then pay the difference between the two figures in monthly instalments. So the higher the residual value of the van, the lower your payments will be.
What are the pros and cons of contract hire?
Many of the advantages and disadvantages of contract hire are a matter of perception – i.e. what's right for one driver might be wrong for another, and vice-versa.
For example by taking out a contract hire agreement you never take ownership of the vehicle. That may be a problem for some, but an advantage for others who like the idea of being able to return the van and walk away without dealing with re-sales, etc. Many contract hire agreements also include maintenance packages – meaning all you have to worry about is comprehensive insurance and putting fuel in the tank.
Contract hire offers fixed-cost motoring – you know exactly what you will have to pay and when you have to pay it, helping you to budget.