How Does Contract Hire Work?

What is Contract Hire and how does it work? In this guide, we break down why leasing a car is becoming so popular and answer some of the more common questions about the different stages of Contract Hire.

Start of the contract

Initial Rental

At the start of the contract you pay an initial rental, this can be a set amount or multiples of the monthly rental.

This is normally 3x or 6x your monthly rental cost, for example – if the monthly payment is £100 and the initial rental is 3x... it would be £300!

This is usually displayed as 6+23 (6x monthly rental cost as your initial payment followed by 23 monthly payments).

Contract Term

Next, you set the contract term. Basically, this is the period of time you want to take the vehicle over.

This is normally taken over 24, 36 or 48 months.

Annual Mileage

Lastly, you will need to agree with the finance company on what annual mileage the vehicle is expected to do. In most cases, this can be amended during the contract if your circumstances change.

Middle of the contract

During the term of the contract, it’s relatively plain sailing. If the vehicle needs to be serviced, you must get this done as per the manufacturer's guidelines, otherwise, you risk paying a penalty charge when the vehicle is returned. The simple way to put it is: treat the vehicle like it’s your own. If it needs a service – get it serviced. If the tyre needs replacing – replace the tyre. You get the picture.

End of the contract

This is the easy part. Simply hand the vehicle back at the end of the lease agreement! That's all you need to do.

On a serious note, all of the major finance companies adhere to the British Vehicle Rental And Leasing Association’s (BVRLA) Fair Wear & Tear guide. This means that only genuine damage is charged. Light scratches, stone chips, and small scuffs to the wheels are all deemed to be acceptable.

Naturally, if the vehicle is damaged beyond “Fair Wear & Tear” there will be additional charges to be paid. However, if you treat the vehicle like it’s your own and repair any large damage, returning your car at the end of your contract couldn't be easier.

If someone scrapes a key along the side of the vehicle and you owned it, chances are you’d get it fixed – so why wouldn’t you do it with a lease car?

As long as you can accept the fact that you never own the vehicle, simply hire it from the finance company.