Skip to main content

Fleet Management

Outright Purchase vs Contract Hire: Which is right for my fleet vehicles?

Choosing the right financial model for your company's fleet is more than just a matter of cost—it's a strategic decision which can significantly impact your company's operations and bottom line. But how do you decide which is right? Should you opt for Outright Purchase, or would leasing be a better fit?

 

These decisions can be complex and multifaceted, with various factors to consider.

 

In this blog post, we'll explore two financial models, discuss their advantages and drawbacks, and present the key considerations to help you make the right decision for your fleet.

Outright Purchase vs. Contract Hire

When it comes to fleet financing, the two most common options are Outright Purchase and Contract Hire. Each of these approaches offers its own advantages and potential drawbacks, and the best choice for your business will depend on your unique needs.

Outright Purchase

Outright purchase simply means, your company buys the vehicles and owns them outright. This approach gives you full control over the vehicles, including when and how to sell them.

 

The key benefits of outright purchase include the ability to recoup some of your investment by selling the vehicles at a later date (with the vehicle sitting on your balance sheet in the meantime) and complete discretion over how the vehicle is used. However, it's important to consider the significant upfront cost involved in purchasing vehicles, the risks of depreciation, the servicing, maintenance and repair costs and the potential impact on your company's cash flow.

Contract Hire

Contract Hire is a leasing agreement which essentially means renting a vehicle for an agreed amount of time and mileage for a fixed monthly fee. This could be a more cost-effective option than purchasing outright, especially for growing businesses.

 

The main benefits of Contract Hire include clear, predictable monthly costs with low-to-zero upfront cash investment, no unexpected maintenance costs if you choose a fully-maintained option, and access to newer, safer, and more eco-friendly vehicles, thus enhancing your company's reputation and sustainability goals.

 

However, with Contract Hire, you'll need to be mindful of contractual stipulations which could lead to extra charges, such as excess mileage, vehicle condition on return, and early termination.

How to decide which is right for your fleet?

Choosing between Outright Purchase and Contract Hire for your fleet is a significant decision which will impact your company's finances, operations, and even your workforce's satisfaction. Here are some key considerations to help you make your choice:

Upfront cost

Purchasing vehicles requires a substantial initial investment, which might strain your company's capital. Choosing Contract Hire, however, requires significantly lower or even no upfront costs, allowing you to allocate funds to other areas of your business.

Cash flow

Contract Hire can improve your fleet's cash flow by spreading the cost of the vehicle over time, resulting in predictable monthly payments. This can be especially beneficial for businesses looking to manage their operational expenses effectively.

Maintenance and repairs

Owning vehicles means you're responsible for all maintenance and repair costs, which can be unpredictable and hefty. With Contract Hire, especially with a full maintenance option, these costs are often included in your contract, reducing unexpected expenses.

Resale value

When you purchase a vehicle, you have the opportunity to sell it later on, potentially recouping some of your investment. However, this also means you bear the risk of depreciation. With Contract Hire, the resale risk is purely with the leasing company.

Flexibility

Contract Hire can offer more flexibility, enabling you to change vehicles more frequently and easily adapt to changing business needs. It can be particularly beneficial if your company's vehicle needs are likely to change over the next few years.

Tax implications

Depending on your location and specific situation, the tax implications of outright purchasing versus Contract Hire can vary. It's important to consult with a financial advisor or tax professional to understand these potential impacts.

Employee satisfaction

Consider the preferences of your employees. Contract Hire often enables them to drive newer vehicles, which can be a significant perk and boost employee satisfaction and retention.

As fleet financing is no small decision, it's important to make a choice that suits your business's unique needs and goals. We’re here to help make this process simpler and more informed.

Talk to our experts

Got questions? We’ve got answers

Whether you're leaning towards Outright Purchase, considering Contract Hire , or still not sure which is right, our team of experts is ready to guide you towards the most suitable solution. Get in touch for expert advice on what might best suit your specific business needs and priorities.

  • Email us

  • 0370 50 50 100

Related articles and services

  1. The ins and outs of Contract Hire

      

    Read more

  2. Mastering fleet management and cost management

      

    Read more

  3. Which business car financing product is right for you?

      

    Read more