Octane Vehicle Leasing

Contract Hire - Suitability explanation

Contract Hire (CH) is a fixed term and mileage-based agreement for the hire of a car or van for a period usually between 2 and 5 years. It is important that your agreement reflects your predicted annual mileage. The vehicle will not belong to you at any point in the agreement so you cannot sell the vehicle. With a Contract Hire agreement, you pay an initial rental followed by an agreed number of fixed monthly rentals and all rentals are subject to VAT at the prevailing rate for the specific period of hire you have chosen. At the end of the agreement, the vehicle must be returned to the contract hire company.

Contract Hire may not be suitable for you in certain circumstances. For example:

  • If you wish to buy or own the vehicle
  • If you might be required to change your vehicle during your contract - As you may be subject to early termination charges
  • If you would like to shorten your period of the lease by pre-paying
  • If you are unable to predict your mileage
  • Business type restrictions, e.g., using your vehicle as a taxi or for a driving school
  • If you plan to export the vehicle or use it abroad for extended periods

Benefits of Contract Hire:

  • Low initial outlay and fixed monthly rentals
  • Choice of a period from 2 to 5 years with your choice of mileage
  • Optional maintenance plans are available for a fixed monthly fee
  • The road fund license is included for the duration of the agreement, though charges may apply reflecting future increases
  • VAT on the rental is reclaimable if you are VAT registered – 100% on LCVs, 100% on the maintenance element for cars and LCVs, 50% on the finance element for cars (or 100% for cars solely used for business for example a pool car).
  • Tax-efficient – up to 100% of the rental cost can be offset against taxable profits.
  • The vehicle is simply returned at the end of the agreement, removing concerns about resale values and depreciation.

Taking care of the vehicle:

You must ensure the vehicle is always comprehensively insured. You must pay any additional charges that you incur for example a parking fine or congestion charge on time. If you don’t, the cost and/or fine will be issued to the finance company which will invoice this to you together with an administration charge that they will levy. You must have the vehicle serviced and maintained by a main franchised dealer in accordance with the manufacturer’s recommendations and keep it roadworthy. If you do not service and maintain the vehicle, the funder will make a charge when the vehicle is returned as this will affect its value. You may add a cost-effective maintenance package that will cover routine servicing, maintenance costs, and tyres, subject to fair wear and tear plus breakdown assistance to enable easy budgeting and give you fixed cost motoring. If you include a maintenance package please note the funder may decline to settle any charges if the total mileage on the agreement is exceeded. At the end of the agreement, the finance company will assess the vehicle's condition based on the standards set down in the British Vehicle Rental and Leasing Association’s fair wear and tear guide. Refurbishment charges may apply if the condition is not satisfactory. If you exceed the total contract mileage you will be charged at the pence per mile as detailed in your agreement for the over mileage. When the vehicle is returned, it must have all items that were present when it was delivered, for example, all keys, and the locking wheel nuts. If any items are missing, you will be charged for the replacement. Failure to make payments in full and on time may result in the contract being terminated and the vehicle repossessed. Only enter into an agreement if you are comfortable with the financial commitment and terms.