At the end of the lease contract, the business returns the old company car and obtains a new car and lease contract. Occasionally, here may be an opportunity to purchase the vehicle at the end of the period if done through a third party.
Advantages of Business Contract Hire
Business Contract Hire is a popular option for businesses because:
1. Contract Hire frees up cash instead of investing it in a non-core depreciating asset since there is a smaller initial payment required (the equivalent of only 3 months payments upfront);
2. It avoids having the asset on the balance sheet and avoids financial risk as the business is not committed to the entire cost of the vehicle;
3. The business spends significantly less each month (as much as 60%) than it would need to spend on a loan or ‘hire purchase’ (it gets a ‘bigger bang for its buck’);
4. There is no need to arrange or negotiate to sell the vehicle when a new one is required;
5. There is no market value risk arising from the vehicle because it does not need to be sold in the open market at any point;
6. The business can select the exact requirements online and have them delivered;
7. It is certainly cheaper than ownership over the long term if the business needs to run and replace new vehicles more frequently than every five years or less;
8. The business can include all maintenance and services in the monthly price;
9. The road fund licence will always be included for the first year of the lease contract and often for the life of the contract; and,
10. Vehicles can be kept relatively new and this promotes a positive, successful image of the business