Contract hire is a way of financing a vehicle that is popular with both business and personal users. It is different from purchasing in a vehicle in that the person or business that hires the vehicle do not own the vehicle but rather pay a monthly fee to hire it before returning it at the end of an agreed period of time. In this respect contract hire is very similar to conventional hire deals however there are a few fundamental differences.

Contract hire is generally arranged over a longer period of time than normal car hire deals and these longer length of deals usually range between 12, 24 and 36 months. The majority of deals on contract hire last for three years the major benefit of these long term deals for the person leasing the car is that they generally work out cheaper than the shorter term deals. For the company that lease the vehicle this also provides a greater level of security as they can feel confident that there vehicle will bring in an income over a longer period of time.

Contract hire is often arranged by finance companies who calculate the cost of the rental price based on the levels of depreciation in value of the vehicle, the funding costs of purchasing the vehicle and the cost of the administration associated with arranging the deals.

The company takes full responsibility of ownership of the vehicle and will suffer if they do not calculate their margins effectively. At the end of the contract the person that has used contract hire returns the vehicle without having to worry about selling it on and the finance company take on this responsibility. The contract hire company also has to ensure that they receive the monthly fee and they often build in a down payment that might be two or three times the value of the monthly payment. This is done to secure the deal in the event that the person leasing the vehicle can't pay off what they own.

The contract hire deals are usually offered with insurance included as part of the monthly payment. It is also possible to have maintenance costs included in the price of the contract and furthermore breakdown cover can also often be added. This means that someone that utilises contract hire can do so without having to worry with any of the unexpected costs that are related to owning a vehicle. Often the only additional cost that people that use contract hire have is fuel. This can be a really desirable aspect of contract hire and makes it a particularly appetising proposition for businesses that need to keep monthly outgoings static.

It is also beneficial to businesses as it does not mean that they have to fork out large sums of money to purchase a vehicle and do not have to worry about selling them on when they become outdated. This also means that they can afford good quality cars which in turn give a good image of the company.

Contract hire has steadily become more popular in the UK as more people begin to understand the benefits of contract hire over purchase. It is fast becoming the favoured methods for business and company cars in the UK and with the credit crunch setting in many people are choosing it as an option for their personal car. It is particularly beneficial to businesses as there are many tax advantages for businesses.