What Is A Contract Hire Agreement?

Last Updated: 13th Apr 2017
What Is A Contract Hire Agreement?

13th April 2017

A Contract Hire agreement is the purest form of car leasing. You only have the option of handing the car back at the end of the agreement. When people talk about car leasing, they are referring to Contract Hire (CH). It works simply with you paying a deposit followed by a series of monthly payments for the duration of the agreement. These are commonly available on brand new cars.

What is Contract Hire?

Contract Hire agreements are leasing options that allow you to lease a car for a certain period of time. Like most leasing and finance options, a Contract Hire agreement is split into two parts. You first pay a deposit and then the monthly payments. The length of your agreement is commonly between 24-60 months, with most settling on 48-month agreements.

When your agreement comes to an end, you must return the car. That is the only option available.

How does a CH agreement work?

A Contract Hire agreement requires a deposit and fixed monthly payments. The monthly payments do not contribute to the cost of the vehicle, rather they cover the cost of the depreciation of the vehicle over the lease period. Your deposit comes in three different options.

  • Deposit worth three months of monthly payments
  • Deposit worth six months of monthly payments
  • Deposit worth nine months of monthly payments

Your monthly payments are dependent upon a variety of factors.

  • Size of your deposit
  • Duration of the lease
  • Annual Mileage allowance
  • Interest rates

The larger the deposit you pay, the lower your monthly payments will be and vice versa. At the start of your Contract Hire agreement, you decide on your annual mileage allowance. The higher your mileage allowance, the higher your payments will be.

The longer you lease the car for, the cheaper your monthly payments will be. However, bear in mind that the longer the lease is, the more you will pay in interest. The interest you will pay is dependent upon the quality of your credit score. The better the credit score, the lower the interest payments.

How does CH end?

A Contract Hire agreement has only one option at the end: you must return the car to the lender. This can be done without any additional cost to you if you have followed the wear and tear guidelines.

If your car is in good condition, you will pay nothing. If your car needs any maintenance or body work upon its return to the lender, you may be required to pay for needed repairs.

There may be other additional charges if you go over your annual mileage allowance. Your monthly payments take into account how many miles is estimate you will drive. There is a charge for each mile over the agreed allowance.

If you are happy with a Contract Hire agreement, we have a great selection of cars available to view here.

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