How does Business Contract Hire work?

Business Contract Hire explained

What is Business Contract Hire?

Business Contract Hire is very similar to Personal Contract Hire in the sense that it is a long-term car rental agreement where a fixed monthly fee is paid to use the car for an agreed time period. The difference here is that it is exclusively for businesses.

Business Contract Hire agreements allow a company to lease cars for their employees for a set period of time, typically between 12 and 48 months. Throughout the duration of the agreement, the company taking the agreement out does not own the cars; the lease company retains ownership of the cars and when the term of the contract is over, the cars are returned to the lease company.

An advance rental payment of 1 to 21 months is required to secure the cars that you want to lease. You then decide how long you want to lease the cars for and set an agreed monthly payment to be paid for the duration of the lease term. At the end of the deal, the cars go back to the lease company.

Businessman agree business contract hire deal

At the beginning of the contract, the team here at Wilsons will help you to work out a plan to suit your business including the length of your payment plan and the estimated mileage you are likely to incur. We understand that every business has different needs and we offer flexible finance packages to suit you.

How does Business Contract Hire actually work?

At the beginning of your Business Contract Hire agreement the finance company will work out the 'residual value' of the cars. This is the cars' value at the end of the contractual period once depreciation has been taken into account.

In order to estimate this value accurately, you will be asked to estimate the mileage you are likely to incur. It is important to be as accurate as possible because if this is exceeded you will be subject to a charge per mile.

To calculate your payments, the finance company will deduct the estimated residual value from the retail price of the cars, leaving you to pay the difference in fixed monthly instalments.

Vehicles can be leased with or without maintenance agreements which will cover servicing and warranty among other aspects of running a car. If you are a VAT registered company a Business Contract Hire agreement will mean that you can claim back 50% of the VAT on the finance element. Business Contract Hire could help you to budget more accurately as a result of tax advantages like this and reduced administration. You would be able to remove company cars from the balance sheet, avoid the issue of depreciation and avoid slipping into negative equity. With a Business Contract Hire agreement there is no financial risk on residual value.

What happens once the Business Contract Hire deal has finished?

Once the monthly payments have come to an end you will have two options. The first is that you can choose to extend the lease on the cars. If this is the option that you decide to choose it is worth contacting the finance company around three months before the end of the deal to check that they will allow this and to see whether they will offer a lower price on the monthly payment because the car is now older.

The second option that is available to you is to hand the cars back. If the cars are within the boundaries of general wear and tear and you've stuck within the agreed mileage from the start of the agreement, then there will be nothing additional to pay. If you do go over the mileage limit the charge is usually between 3p and 10p per mile.

Business Contract Hire Pros

1. Reclaim a portion of the VAT paid on rental fees

2. Option to bundle service costs in with rental payment

3. No commitment to own vehicles outright

4. Lower initial payments and fixed rental fees

5. Free up capital that would otherwise be invested in depreciating cars

Business Contract Hire Cons

1. You won't ever own the cars or have the option to buy it

2. Additional charges if you go over the agreed set mileage

3. You will be charged extra for any damages deemed not normal wear and tear

4. If the car is written off and the insurer's value is less than the leasing company's, you may be liable for the difference

How To Find Out More

Please get in touch with Wilsons to select new vehicles and to learn more about the Business Contract Hire options available at our dealership. As Business Contract Hire agreements can only be chosen from dealers, and aren't on price comparison websites, you won't find these offers anywhere else.

Call 01372 736 000 for more information about Business Contract Hire

More Car Finance Options​