Advantages and Disadvantages of Contract Hire Cars

A major decision that many individuals and businesses make is whether to go for contract hire cars or whether to purchase a car. Both contract hiring and buying have their advantages and disadvantages.

Depending on your particular situation, the factors below will help you in making your decision.

Advantages of contract hire cars

Pay only the depreciation over the lease term

With contract hire, you pay the effective depreciation of the car, not the total depreciation, unlike when you buy. So, if a car’s value is £50,000 and its estimated value after two years will be £30,000, your monthly repayments, will amount to £20,000 over the lease term; the difference in value. This means that you pay much less if you lease compared to if you buy the car.

You have an option to buy

Another major advantage of contract hire cars is that after the car leasing period ends, you choose whether you want to buy the car or look for another lease hire car. This means that based on the options available, you can postpone your buying decision to a later date. When you choose to buy the car, you can negotiate a good price since the dealer gives priority to people who buy a lease hire car.

Damages and repairs are partially or totally covered

In most contract hire agreements, the costs of repairing and maintaining the car are borne by the leasing company. This means that you get to save a lot in terms of maintenance costs. Some car leasing contracts will have an arrangement of sharing the costs of repairs and maintenance. The dealer will, however, insist that you take out comprehensive insurance for the car, and this may be an extra charge.

Credit report

It is easy to get financing for car leasing since the risks to the lending company are low. Therefore, if your credit is bad and you find it hard to secure financing to purchase your car, you can consider car leasing as a viable option.

Disadvantages of contract hire cars

There are some disadvantages related to leasing a car.

Heavy charges for contract cancellation

If for any reason you choose or are forced to cancel the contract before the contract term ends, you will pay much in terms of penalty charges. The company seeks to protect itself from loss risks and, therefore, the penalty charges of breaking the lease before its term are more punitive. You may need to break the term for many reasons. You may need to travel or you may be without a job. You may also lose your licence because of a traffic offence.

Heavy charges on extra mileage

The lease contract stipulates the maximum mileage that you can cover under the contract. It then places very high charges for every mile exceeded beyond the contract limit. These charges limit your use of the car since you are conscious about not going beyond the agreed mileage.

Your payments do not go towards equity

Unlike when purchasing a car, car leasing payments do not go towards car equity. As soon as the contract is over, the car reverts to the dealer or lessor. You can therefore not use the car as collateral for a loan and your payments do not help in acquiring the car.

Final thoughts

Overall, contract hire offers a very easy way to get your hands on a new vehicle, at an affordable price. Choose your contract hire company carefully and you’ll have many miles of trouble-free driving.