I will try very much to explain in laymans terms how contract hire works and perphaps address a few little misconceptions, and perphaps indicate who it suits best.
Van Contract Hire Overview Summary
- Deposits. Normally a minimum of three payments in advance
- Normally available to a business user only
- Mileage must be set at the beginning, with higher useage attracting a higher rental
- Credit check, yes of course. We often get customers asking for contract hire since they mistakenly believe that there is no credit check. It is actually more stringent than other finacial packages.
- Damage. You dent it you pay. If you scratch it you pay, etc. Some of the cheapest contract hire companies often attract the most stringent damage assessment programmes at the end.
- Excess mileage. You pay per mile.
- Insurance. Quite often it is more expensive to insure a vehicle on contract hire than on HP or lease. Check. Shocked? We were.
- Disposal. The bank, if they have done their job properly make money when they sell a van. Occasionally the vehicle is pre-sold, occasionally it goes to auction. You can't control the sale, you can neither profit or loss.
- If a water powered van is invented that causes all diesel vans to half in value overnight, you can sleep soundly with regards to depreciation
- If you are running 100 vans all the same type it is perfect, especially if you are a PLC on the stock market as there are no disposal issues
There is no disposal risk or so it seems. Read also disadvantages.
- Tax wise it makes sense as 100 % against tax
- Deposit wise it is rather low
- Maintinence can be included, but also see disadvantages
- RFL normally road fund licence is included
- Large discounts from vehicles. The banks buy in bulk, but quite as bulk as us, so a large discount is often pre-negotiated beforehand.
- No profit at the end. Many customers dispose of vehicles at a profit. With contract hire this goes to the bank. Banks make more from disposal than the interest charged
- Often many web based contract hire deals were limited offers, in small batches, thus when you ring up they are gone
- Customers imagine care free motoring. A friendly face will simply take the keys away at the end and the van with it. In reality, some of these guys are rumored to be on a "find the dent" commission based on how much money they can get back from you as penalties at the end. You can run up quite a bill with "no disposal risk"
- Cost. It will always be more expensive than a lease pound for pound since there is more risk to cover for the lender. Not only the risk of you defaulting, but the risk of being wrong on disposal price.
- Credit check. A little harder, with some lenders being just plain fussy.
- Extras. Watch the monly rocket if you want toys on your new plaything.
At Swiss Leasing we try to strike a balance with van contract hire
- A sensible rental figure, and a generally wide acceptance criteria, but still relatively clean compared with other finance packages we offer.
- We supply the vans to the bank contract hire lenders. We pay less based on greater volume. We have them in stock, they don't.
- We try to have the vans pre- sold at the end, thus lowering the monthly figure. Auctions take a slice which we try to cut out and lower our rentals. We might offer you a deal conditionally to you agreeing to drive the van "home" at the end.