Few things in life depreciate at the same rate as a new car. It is often said that as soon as you drive a new vehicle from the forecourt, you lose a massive percentage of the car’s value. However, there are ways to counteract this huge loss in asset value; one of which is by bypassing the purchasing of the vehicle to lease the vehicle on a personal contract hire agreement.

Personal contract hire is the most common form of vehicle leasing and is both cost-effective and simple to manage. With a personal contract hire agreement, the lessee takes control of a vehicle over the course of the lease agreement and, in return, pays fixed monthly payments to the lessor. Ownership of the vehicle is always retained by the lessor and is never transferred to the lessee.

The fixed monthly payments that the lessee makes to the lessor are primarily based on the depreciation of the vehicle over the period of the lease agreement; this is calculated by the lessor first determining the residual value of the vehicle at the end of the lease agreement and factoring in a limited mileage agreement which, if exceeded, will be harshly penalized for, generally on a per-mile basis.

The benefits to personal contract hire are vast. One of the most important to most people is the decrease in responsibility that the lessee has in comparison to other forms of vehicle purchase agreements. At the end of the contract, once the last payment has been made, you are free to hand the keys to the vehicle back to the lessor and walk away, literally. Also, you have the option, with most lease companies, to purchase an additional maintenance agreement which will pay for any repairs or replacement parts that the vehicle needs during the course of the contract.

Another benefit of personal contract hire agreements is that because you will be leasing the vehicle, you don’t have to be concerned about the depreciation and subsequent future resale value of the vehicle, plus your road fund license will also be paid for by the lessor. Moreover, monthly payments for hire contracts are generally lower than the equivalent amount in the form of personal loans from financial institutions.

It is difficult to see the downsides to personal contract hire as there seem to be so many advantages. One, of course, is that you will never own the vehicle that you are leasing; but the other side of the coin is that you will be able to take control of a vehicle that is way out of your budget, because high- class ‚luxury‘ cars have a tendency to hold their value better, which consequently means lower monthly lease payments.

Learn More : Contract Hire