How Contract Hire Works
Topics: hire purchase, contract hire, car purchase, leasing a car
Contract Hire enables companies to run their company vehicles without the worry and risks of the capital cost and future vehicle values. Perhaps the simplest way to think of a Contract Hire agreement is as long-term car hire.
The contract is for a fixed term, which can be for a period of 12 months to 48 months. Typical terms for contract hire are either two or three years, normally with three monthly payments made in advance. For example if it were a two year contract of say $200 per month, you would make an initial payment of $600 and then pay 23 monthly payments of $200. All payments are subject to VAT, in most cases the company can re-claim 50% of the VAT in the case of cars and 100% for commercial vehicles. Normally the monthly rentals can be off set against profits. At the end of the term you simply hand the vehicle back.
The advantages of Contract Hire to a company are as follows:
* Off balance sheet funding
* Fully budgeted costs
* Maintenance can be included
* No worries about future values
* Does not tie up staff time on vehicle disposal
Contract Hire versus Hire Purchase of vehicles.
Many companies are now opting for Contract Hire in preference to Hire Purchase for their company vehicles. The attraction seems to be the ease of acquiring vehicles without the responsibility of ownership or the time and effort involved with eventual disposal. It also appeals to many companies that Contract Hire is off balance sheet and that they have fully budgeted costs.
When companies opt for hire purchase it can be because they plan to keep the vehicle for longer than a typical three year Contract Hire term. Although it is unusual for a company nowadays to keep a vehicle for longer that three years and of course if they do so, they have to consider that most vehicles will then be outside the warranty period.
It can also be because they feel that they may need to exit from the agreement early; although there are penalties payable for early termination with both funding methods, it is generally less expensive to terminate a Hire Purchase agreement. Of course for those who are concerned about this, they could as an alternative opt for a shorter Contract Hire agreement of say two years. Most companies provide the option to extend the agreement at the end of two years, in some cases on a monthly or quarterly basis.
Personal Contract Hire. (Contract Hire for individuals)
Personal Contract Hire is very similar to Contract Hire, detailed above; Contract Hire is designed for businesses and Personal Contract Hire is for individuals who wish to lease a vehicle. The only real difference for the client is the treatment of VAT. In the case of Contract Hire, the client pays a monthly rental to which VAT is added. In the case of Personal Contract Hire the monthly rental is inclusive of VAT.
The other benefits are the same as Contract Hire; fully budgeted monthly cost, maintenance can be included (so even the cost of replacing tyres is included in the monthly cost) and no further worries of disposing your vehicle. For many car owners the worst aspect of acquiring a new car is having to advertise and sell their existing vehicle and discovering that in the time they have owned it, it has dropped dramatically in value. With Personal Contract Hire as with Contract Hire you simply hand the vehicle back at the end of the term.
Personal Contract Hire versus Hire Purchase of vehicles.
Over the past few years many individuals have opted for Personal Contract Hire in preference to Vehicle Hire Purchase. This funding method can be of particular interest to those who are opting out of a company car scheme, or are in receipt of a car allowance. Also the ease of acquiring vehicles without the responsibility of ownership and eventual disposal of the vehicle seems to be an added attraction. Many seem to find the disposal of their vehicle to be particularly onerous; not liking the idea of a stranger turning up at their home to view the vehicle, and also they are often unsure of how best to deal with a test drive, as the prospective purchaser may not be fully insured.
When the vehicle is sold there is then the issue of payment; in general it is not considered advisable to receive large amounts of cash at home. If the purchaser is paying for the vehicle with a Bankers Draft, as a precaution it’s authenticity should be verified with the issuing bank.
For those who opt for Hire Purchase in preference to Personal Contract Hire when acquiring a new vehicle it is often done because they feel that they may keep the vehicle longer than the typical three-year term offered with Contract Hire. Also some feel there may be the possibility of needing to withdraw from the agreement early; although there are penalties for doing so with both funding methods, it is generally less expensive in the case of Hire Purchase. Of course those who are concerned about this, could as an alternative opt for a shorter two-year Personal Contract Hire term.
What to look out for when obtaining a Contract Hire or Personal Contract Hire quote.
Vehicle sourcing and broking is at the moment unregulated. There are government plans that it should become a regulated industry, in the meantime care should be taken when obtaining quotations.
* Advance Payments. A typical Contract Hire or Personal Contract Hire quotation will show three payments in advance, followed by perhaps 23 or 35 payments depending on the term. Some companies will advertise what appears to be a low monthly rental, however on closer inspection, it becomes evident that rather than three payments to be made in advance there are six. On other occasions the rental appears low because a much larger initial payment is required, sometimes running into thousands of pounds (there is an example at the end of this section, as to how a cost comparison can be made between a company quoting six payments and another quoting three payments in advance). In general the most straightforward way to make a cost comparison is to look at companies quoting three payments in advance and 10,000 miles per annum. I0,000 is the mileage companies normally advertise. Should your annual mileage requirements be higher most companies will be happy to provide a quotation at yo
ur required level.
* Deposits. If a broker requires a deposit it is very important to establish the terms under which the deposit is paid (a deposit should normally be paid to the supplying dealer). There have been many cases of vehicles not being delivered and the customer being unable to recover their deposit.
* Fees. On occasions there may be a fee payable, this can be unavoidable because some manufacturers charge a documentation fee, of perhaps $125 - $150. There are however cases of brokers charging their own fees. This is not necessarily a reason not to deal with a company but it is important to take the cost of the fee into account when comparing costs.
* Vehicle Availability. It is important to establish that a vehicle being advertised by a company is actually available at the price quoted and either in stock, or they are able to quote a delivery date. This can help to avoid the time and sometimes money that can be lost ordering a vehicle that is just not available, or not available at the price advertised.
Should you wish to establish which quote is the most competitive for a similar vehicle advertised, one company offering three and another six payments in advance, the calculation is as follows.
A Contract Hire Quote of $200 per month over 36 months with three payments in advance.
3 payments in advance $600
35 monthly payments @ $200 $7,000
Total cost $7,600
The same vehicle quoted at $189 per month over 36 months with six payments in advance.
6 payments in advance $1,134
35 monthly payments @ $189 $6,615
Total cost $ 7,749
In this example the vehicle that appears cheaper at first glance, is in practice more expensive. There is also a slight financial disadvantage when making six payments in advance; the extra cost of the three additional payments has to be found at the beginning of the contract, rather than being spread over the term. The difference however is minimal and in the interests of simplicity it is probably best to ignore this factor when making a comparison.
Should you have any queries or questions regarding Contract Hire, Personal Contract Hire or Hire Purchase or any other funding method, please do not hesitate to contact us. Bowater Price plc www.bowaterprice.com.
Previous Articles Highlighter:
Car Shows Are Great But Should You Buy A Vehicle At A Car Show? (1)
The other major con about buying a from an automobile show is that you will not be able to take a test drive unless the person is leaving the event and you demand a test drive.
Some Good Reasons To Consider Attending Car Shows (2)
Some people will go to expos just based on one style of vehicle or even one type of automobile but that's not a true auto show that's a car club.
Fashionble Styles In Maternity Clothing (3)
An expectant mother can continue life as normal with the trendy fashion designs that are available in maternity clothing. A pregnant woman can still visit friends for coffee and go see a ballgame with friends in the evening.
Stock Valuation Model - 3 Simple Techniques To Value Stock (4)
Everybody knows the stock price but only few understand how much it worth and the other investors do not even care. The reason can be due to different strategies, do not know how to value stock or just do not care how much it worth as long as the price increase the next day.
Guide To Shopping For Sterling Silver Jewelry Online (5)
Many jewelry experts agree that any piece of jewelry that weighs at least one gram per inch is a bold design, which means a 7" bracelet with 7 grams of silver would be considered a substantial presence.
How To Build A Home Theater System Step By Step (6)
The TV Let's start with the television. Now technically, any basic TV will work, but if you want to begin to duplicate a movie theater experience, you have to start with a bigger screen.
Finding The Right Conference Centre (7)
Meeting room Most conference centres include meeting rooms that provide the necessary intimacy so that you can have an effective business meeting without being concerned with the noise or interruption.
10 Steps To Avoid The Goldilocks Resume Writing Syndrome, Part I (8)
Do a skills inventory exercise by making a checklist from the list of job requirements. 3. Take the requirements matching your qualifications and write a rough draft of experience next to each requirement along with a note of which employer.
A Day At The Tennis Court (9)
Some new players are very intimidated at first when they get on the tennis court for the first time. The net stretches across the tennis court in front of them and they are not sure that they can lob the ball over the net each time they try to return a serve.
Real Estate Buying Tips For Your New Home (10)
sometimes it's a total nightmare! Just like anything in life, being prepared and organized will make house hunting much easier. Here are a few essential preparations that will make house hunting a breeze.
Newer Articles Highlighter:
Boston Scavenger Hunt: Genuine Team-Building Fun (1)
Team building in Boston takes on a whole new flavor as your company team can tour Boston in search of clues rediscovering typical haunts and finding new discoveries both in the city and within each other's skill.
Non U.S Bloggers Networking Ideas (2)
For anyone not in the United States, however, it is often very complicated to do successful networking depending on where you are located. When you live in a third world country, there may be a lot of people around but a majority of them probably do not know the basic skills of using the Internet because such technology has not yet been developed in the country.
Keep An Eye On Your Credit Report (3)
If any inaccurate information is found on your report, it should be reported immediately. The consumer reporting company should be notified in writing. Clearly outline the information you believe to be incorrect or inaccurate.
Creating New Real Estate Income Generators (4)
Voila; no seasoning problem. Some States have placed severe restrictions on people who take title "Subject To" a loan, but an Option that calls for a full cash payment legally skirts this problem.
Subscribe To Home Theater Magazines And Get The Most Out Of Your Home Theater System (5)
They can also help ensure that you get the right set up for you. You may be unable to decide between several sets of equipment; there specialized magazines can help you solve this problem -- read up on their reviews of the various systems and you'll become a more informed buyer.
Right Billing Invoice Software Solution For Your Business (6)
It should also be able to assign variable invoicing rates, scheduling all the purchases and their invoices, account debtor payments, reserve rebates and negative reserve rebates. Report generation is another important feature of the billing invoice software.
Common Internet Scams - Work From Home Jobs (7)
The Internet is mind blowing in it's immensity. Somebody once said that only Einstein could comprehend infinity and, to my way of thinking, the Internet must be something akin to that.
The Tifosi; Most Avid Fans In Motor Sport (8)
This is expected in Ferrari's home nation of Italy, a country where the inhabitants have long been viewed as energetic and vigorous in their passions. Ferrari merchandise however sells worldwide, and at nearly every race in the Formula 1 calendar the prancing horse is seen fluttering in the crowd.
Promote Your Website With Articles And Autoresponders (9)
Your subscriber list contains the most targeted audience available for your niche and getting your articles to them quickly is going to be the most beneficial to your business. Determine the frequency at which your autoresponder will e-mail your articles to your e-mail list.
Start Up Business Loans: What Are The Terms? (10)
With larger numbers of women becoming entrepreneurs in start up businesses, a start up loan for a woman-owned business has only become more crucial running a business smoothly. Through a start up loan, a business woman can meet any expense like paying salaries, buying inventory, equipment, office furniture, and clearing pre-existing debts.