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The ins and outs of Contract Hire

posted on 06/07/2023

Running a company-owned fleet vehicles can be both challenging and costly. To help you meet  these challenges, various financing solutions are available to you, offering a means to effectively manage your fleet without the burden of owning the vehicles outright. One such solution is Contract Hire for businesses. This popular financing option provides a practical, cost-effective way to manage your fleet, making it an ideal choice for businesses of all sizes. This blog post will cover the ins and outs of Contract Hire, helping you determine if it's the right choice for your fleet. 

What is Contract Hire?

Contract Hire (sometimes called ‘Operating Lease’) is a specific form of vehicle leasing. In simple terms, it's a medium/long-term vehicle rental agreement, allowing businesses to have access to new or used vehicles for a predetermined length of time and mileage, without the need for outright ownership.

How does it work?

Under a Contract Hire agreement, you pay a fixed monthly cost in return for the use of the vehicle. The monthly rental cost is calculated based on several factors, including the type of vehicle, the length of the contract, the agreed mileage, and the estimated residual value of the vehicle at the end of the contract.

 

One key feature of Contract Hire is that the risk of vehicle depreciation is held by the leasing company, not the business using the vehicle. This means you won't have to worry about selling the vehicles or dealing with potential value loss over time.

 

At the end of the contract term, the vehicle is simply returned to the leasing company (or the contract extended if you want to keep using the vehicle) offering a hassle-free way to manage a fleet.

 

This straightforward approach allows businesses to focus more on their core operations and less on their fleet vehicles.

 

Note: you may have to pay a final charge if you have driven beyond the mileage agreed in the contract or there is any damage to the vehicle which falls outside of reasonable fair eear and tear as noted in the guidelines produced by the British Vehicle Rental and Leasing Association BVLRA). 

Benefits of Contract Hire

No Residual Value Risk

With Contract Hire, the leasing company bears the risk of the vehicle's depreciation value. This eliminates the concern about selling the vehicle and the potential loss in its value over time. You simply return the vehicle at the end of the contract.

Fixed Monthly Payments

The cost of Contract Hire is fixed and predictable. Your monthly rental cost is determined at the start of the contract and remains the same throughout the term. This allows for better financial planning and budget management.

Maintenance and Repairs Handled

If you choose to include a Maintenance package within your Contract Hire agreement, routine maintenance and necessary repairs are included. This not only reduces unexpected costs but also saves time as the leasing company manages these issues.

Access to Better Vehicles

Leasing companies have significant buying power, which often means access to higher-quality vehicles than if a business were to purchase them outright. This can improve the image of your company and the satisfaction of your drivers.

Efficient Fleet Management

Contract Hire often comes with additional fleet management services, which can help ensure your fleet is running smoothly and efficiently. The leasing company takes care of the administrative work related to the vehicles, freeing up valuable resources in your business.

Contract Hire offers an array of benefits, from predictable budgeting and no residual value risk to comprehensive maintenance coverage.

If you're considering Contract Hire or want to explore other fleet financing options, the team at Alphabet is here to help.

 

Get in touch with us today on 01252 976 010 to learn more about how our Contract Hire solutions can be tailored to your needs.

Guiding you through your options

Alphabet offers expert support and a comprehensive range of services for businesses exploring Contract Hire. Here's how Alphabet can help:

Tailored Contract Hire agreements:

Every business has unique needs, and Alphabet understands this. We offer customised Contract Hire agreements to suit your business requirements, taking into consideration factors such as the size of your fleet, the type of vehicles you need, your budget and any additional services your company requires e.g. Accident Management.

Maintenance and repairs:

By including a Maintenance package within your Alphabet Contract Hire agreement, you don't have to worry about the maintenance and repairs of your fleet. Our comprehensive service includes taking care of any maintenance issues, keeping your vehicles in top condition and ensuring they remain reliable and safe for your drivers.

Financial benefits:

Contract Hire agreements with Alphabet offer significant financial benefits. These include fixed monthly payments for easy budgeting, no residual value risk, and the ability to access higher quality vehicles due to our purchasing power.

Fleet management expertise:

Our expert team can take over the complex task of managing your fleet, freeing up your time to focus on other aspects of your business. From vehicle acquisition to managing repairs and maintenance, Alphabet can handle all aspects of your daily fleet operation.

End of contract flexibility:

At the end of your Contract Hire agreement, Alphabet provides you with flexibility. Whether you want to return the vehicle, extend the contract, or lease a new vehicle, our team will guide you through the process smoothly.

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