Contract Hire / Leasing tool

Contract Hire / Leasing tool

Finance - Explained

Finance lease

The first thing you need to know about finance lease is that you will not end up owning the vehicle at the end of the contract. Ownership of the vehicle remains with the finance company at all times.

The agreement is structured so that you pay off the whole value of the asset. Normally paying a deposit first, monthly payments and often, a balloon payment at the end. If you leasing a car or van worth £15,000, you will have to pay the whole £15,000 plus interest. If you are still using the vehicle at the end of the original contract, a second agreement can be entered but this normally has another fee attached to it.

You will be able to balance rental charges against earnings and you are able to claim the VAT back as well.

Contract hire

This gives you an opportunity to have the use of a car or van for the duration of an agreement. You can spread the costs over a set number of months with a maintenance package often getting built into a package. Ownership remains with the finance company and you will pay a set fee over a period or agreed months.

You can often find this cheaper than a finance lease. If, you wanted to buy a car or van for £15,000, a finance lease agreement would be structured to pay off the whole amount plus interest over a set period of, for example, four or five years.

Under contract hire, the contract will specify a residual value that the goods will be worth at the end of the lease. Using our example of a £15,000 car or van, the contract may give a residual value of £5,000 at the end of a four or five year agreement which means you will have pay a total of £10,000 plus interest for the use of the car or van.

If you are worried that the residual value of the vehicle may drop, you can add maintenance to the contract to ensure that the asset will be worth the residual value at the end of the contract hire agreement.


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