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Contract Hire

Why Choose Contract Hire?

There is no doubt that at the moment financially, things are tough. The car industry in particular is going through an especially bad time, so perhaps now is a good time to be a customer if you are looking for a great deal on a car.
Contract hire may be something that is right for your particular circumstances. Often referred to as ‘car leasing’, the term means that, in effect, you are hiring the car for the set period of the contract. Basically, you agree to pay a number of fixed payments for the term of the agreement between you and the leasing company. At the end of the term, you simply return the car to the leasing company. You never actually own the car, but it is yours to use as you wish for the term of the agreement. One attraction is that, if you wish, you can drive a newer model car than you could perhaps afford if you chose to buy a vehicle.

There are a number of factors which influence the payments you have to make for the vehicle. The retail price of the car is weighed against the residual price of the car. The residual cost being the price of the car after it has been used, taking into account the mileage driven and the depreciation of the car. After all, as soon as a car leaves the forecourt of a garage, it begins to lose its value, however slowly. The difference in cost between the retail price and the residual price is then calculated over a number of months to determine the monthly payments. Another advantage of this method is that there is an option for maintenance costs to be included in the price, and you also do not have the worry at the end of the contract of trying to sell the car on. At the end of the contract, there is no pressure to buy, you may simply return the car. Other than the monthly payments that have been calculated, you will be expected to take out comprehensive insurance, which only leaves the cost of petrol (and sometimes road tax after the first year depending on terms)  as your other outgoing. Contract hire offers the advantage of fixed cost motoring, which is an advantage if you are trying to keep to a budget. There is also the advantage that some of the VAT incorporated into the cost and some of the maintenance costs can be offset.
It is worth doing some research before embarking on contract hire. If you drive a lot of miles this may add to depreciation cost, which, as mentioned earlier, adds to the monthly payments. However, contract hire is relatively straightforward and may be right for the type of driving that you do.
It is also important that you take the time to check out the range of insurance available for your contract car. Insurance will depend on which group your vehicle is allocated. Depending on a number of factors, including engine size and even how secure the vehicle is, the car will be allocated an insurance group. The difference between these groups can vary from as little as thirty pounds. However, the difference between higher insurance groups can be as much as two thousand pounds. It is well worth using the internet to identify the best deals as there are significant savings to be had.

Caution should be taken if you decide to purchase your car at the end of the agreement. Professional advice should be sought.

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