What is Contract Hire?
Contract hire is a way of using a new car or van for a fixed period in return for a fixed monthly payment. You never own the vehicle. When the agreement ends, you hand it back. It is essentially a long-term rental, built for businesses that want predictable costs and no hassle at the end.
How contract hire works
You choose a vehicle, a term (commonly 24, 36 or 48 months) and an annual mileage. You then pay an initial rental, followed by the same monthly payment for the rest of the term. The monthly payment covers the cost of the vehicle losing value over the contract, plus the funder's charges.
At the end of the agreement, you return the vehicle. If it has been kept in fair condition and you have stayed within your agreed mileage, there is nothing more to pay. Go over the mileage and you will pay an excess mileage charge, so it pays to be realistic when you choose.
You can see how the process works step by step on our how it works page, or browse the latest deals to see real monthly prices.
How it differs from HP and PCP
With hire purchase (HP) and personal contract purchase (PCP), you are borrowing money to buy the vehicle, and you can end up owning it. Contract hire is different:
- No ownership. You are paying to use the vehicle, not to buy it.
- No balloon payment. There is no final lump sum to find, and no decision about whether to keep the vehicle.
- No resale worry. The funder takes the vehicle back, so you are not exposed to what it is worth in three years' time.
PCP is mainly a consumer product. Contract hire is designed for business use.
Who contract hire suits
Contract hire works well for limited companies, sole traders and partnerships who:
- want to keep cash in the business rather than tie it up in a vehicle
- need a fixed monthly cost to budget around
- like driving a newer vehicle under manufacturer warranty
- would rather not deal with selling a vehicle later
VAT and tax
VAT-registered businesses can usually reclaim some or all of the VAT on the monthly rentals. For vans used only for business, this is normally the full amount. For cars, the rules are different, and generally only part of the VAT can be reclaimed where there is any private use. Tax treatment depends on your circumstances, so speak to your accountant.
No depreciation risk
New vehicles lose value quickly, especially in the first few years. With contract hire, that risk sits with the funder, not you. You agree the price up front and it does not change, whatever happens in the used market.
Is it right for you?
If you want the use of a vehicle, rather than the ownership of one, contract hire is worth a close look. If you would like to own the vehicle at the end, a different product may suit you better. We explain the alternative in our guide to contract hire vs lease purchase.
Ready to compare prices? View all deals.
Swiss Vans Ltd is authorised and regulated by the Financial Conduct Authority as a credit broker, not a lender. FRN 668283.