Contract Hire and Contract Purchase

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Contract Hire / Personal Contract Hire / Contract Purchase / Personal Contract Purchase / Hire Purchase / Lease Purchase / Finance Lease / Outright Purchase

Contract Hire

Contract Hire is a perfect product for companies and private individuals who want to take the hassle and financial risk out of running their own car(s) or van(s).

You simply hire a vehicle for a pre-determined period, usually between 24 and 48 months, at a fixed monthly rental based on an agreed contract mileage.

Once all the paperwork is in place, your vehicle is delivered to your premises and you drive the car or van as though it is yours for the period of the contract. At the end you can just hand the car back and have a replacement delivered (subject to a new contract). No worry about what the car is worth, no hassle of trying to sell the vehicle and the time consuming dealing with prospective purchasers.

A Contract Hire agreement is typically between 24 - 48 months but AMT can offer contract hire agreements from as little as 6 months to a maximum of 60 months on selected vehicles.

If you wish, for an agreed monthly payment, again based on the agreed pre determined period and contract mileage, you can take out an optional maintenance agreement that covers all the costs you are likely to incur for routine servicing, tyre replacements and mechanical failures on the vehicle meaning you have no unexpected garage bills to pay out for. It is worth noting that a maintenance contract does not cover damage to a vehicle that would normally be covered by an insurance policy e.g. damaged windscreens and accident/vandal damage.

The finance company retains ownership of the vehicle and any financial risks associated with it but you are responsible for insuring the car or van and at the end of the contract the vehicle needs to be in a condition commensurate with the age and mileage. All the finance companies offer a fair wear and tear policy meaning the car is not expected to be in retail showroom condition, but any significant dents and scratches should be put right before the end of the contract or you may be charged.

Excess Mileage

With Contract Hire you agree a monthly payment based on the contracted mileage and term of the contract. If you exceed the agreed contract mileage you will be liable for a pre-determined, “pence per mile”, excess mileage charge. This is not a penalty but is simply a charge to recover the extra depreciation that the additional mileage will cause.

All payments on a Contract Hire agreement attract VAT whether you are a business or an individual and usually you are expected to make an advance payment equivalent to 3 monthly rentals.

In addition to the obvious benefits to all users of this type of fixed cost no-hassle agreement, there are other features which may appeal to you if you are a business.

The key benefits of Contract Hire to business users are:

Off balance sheet funding
With a Contract Hire agreement the vehicle does not appear on your company’s balance sheet as it is not owned by you. The vehicle is owned by the finance company therefore it is removing the capital asset from your balance sheet and can improve your company’s borrowing ratio.
Fixed monthly cost
If you take out a Contract Hire agreement, your company agrees to pay a fixed monthly payment for the duration of the contract. The advantage of a fixed cost means your company is able to budget more effectively as there are no hidden costs. This can further be enhanced by taking out a maintenance contract as all your servicing costs will be included in the monthly rental.
VAT Benefits
If you are a VAT registered business you can then claim back 100% of the VAT on the servicing element of the rental cost and 50% of the VAT on the finance rental. Only if you are using the car for 100% business use e.g. you are a car rental company, can all the VAT be reclaimed on the finance rental. With a van however, typically 100% of the VAT is reclaimed on all elements as this is usually accepted as 100% for business.
Reducing your Financial Risks
As the vehicle does not belong to your company there are no financial risks associated with how much the car is depreciating and what it will be worth when you come to sell it You have peace of mind that you are in a fixed cost contract that you can budget for.
Reducing administrative burden
Contract Hire means that an administrator will only be needed to get a quote and ensure the relevant paperwork is sorted at the beginning of the contract. If maintenance is included in the contract the driver can simply call a number to arrange any maintenance themselves so there are no garage bills to administer and pay.
Am I a business or private user?
A business user may be described as any trading concern whether a limited company, partnership or sole trader who can offset the acquisition and running costs of a vehicle (or a proportion thereof) through the business accounts.
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Personal Contract Hire

This is exactly the same as Contract Hire, it’s just branded to illustrate it is available for private individuals.

If you are not a business entity then you can obviously not reclaim any of the VAT on the monthly payments.

Contract Purchase

It is also an ideal method for financing the more expensive vehicle on the fleet i.e. those over £25,000. It offers the same operational benefits of Contract Hire with the main difference being that the vehicle is on the balance sheet.

The major difference between Contract Hire and Contract Purchase is the fact you have an option to buy the vehicle at the end of the contract. When you take out the contract there will be a final "balloon payment" option which will be agreed at the start of the contract. At the end of the contract you have a choice to pay this figure or simply hand the vehicle back to the finance company.

If your company decides to buy the vehicle at the end of the contract your company is then responsible for the vehicle from maintenance to disposing of the vehicle when it is no longer needed. Where a vehicle is worth in excess of £25,000 a business may consider this to be a viable option.

The key benefits of Contract Purchase to the business user are:

Low Initial Deposit
Fixed monthly payment
Writing down allowance
Interest charges can be offset against tax
No risk on residual value
Optional final payment
No restriction on make or model
Alternative credit line

A Contract Purchase agreement is typically 18 - 60 months.

Personal Contract Purchase

This is a hassle free way of financing your ideal car as it is a fixed monthly payment over a set contract period where you have agreed the vehicle will cover a set amount of miles per year. The main difference between Personal Contract Hire and Personal Contract Purchase is that at the end of the contract there is an option to buy the vehicle. This price is known as a “balloon payment” which is predetermined at the start of your contract. You can still decide to return the vehicle at no additional cost but you have flexibility within the contract to purchase the vehicle at the end of the contract if you so wish.

The key benefits of Personal Contract Purchase to the private individual are:

Low initial deposit
Fixed monthly payment
No risk on residual value
Optional final payment

A Personal Contract Purchase agreement is typically 24- 60 months.

Contract Hire / Personal Contract Hire / Contract Purchase / Personal Contract Purchase
Hire Purchase / Lease Purchase / Finance Lease / Outright Purchase

For more information on Contract Hire and Contract Purchase please contact the AMT sales team on 0844 8262300 or e-mail us your enquiry at enquiries@amtleasing.co.uk.