A Guide To Personal Contract Hire Finance

Personal Contract HirePersonal contract hire is a way to get protection from depreciation and offers many advantages. It is used by individuals who don’t want to assume the financial risk of vehicle ownership.

As soon as a new car owner drives a car off the dealer’s property, it is considered to have depreciated in value. In fact, few acquisitions can depreciate as fast as a new automobile. A way to eliminate this rapid depreciation is to use personal contract hire because it’s easy to control and it’s cost effective.

How Personal Contract Hire Works

The difference between personal contract hire and regular contract hire is that personal contract hire pertains to private individuals. Although it is one of many forms of car leasing, most people refer to it as “car leasing,” considering “personal contract hire” and “car leasing” as synonymous and interchangeable.

After you sign a personal contract hire agreement you have taken control of the car for a contractual period, which is also called a “lease period.”

Although you now possess the car and can use it as you please, you don’t actually own it. By making regular monthly payments for a fixed amount for a particular duration, you can use the car until the agreement expires. After this time period has elapsed, you can either renew the agreement or return the car. Since you don’t own the car, its depreciation and loss of resale value is not an issue for you. Once you return the car, you have no further obligations with the leasing company.

How Payments Are Determined

The personal contract hire company calculates the car’s residual value, an evaluation of its depreciation, at the end of the contractual period. This calculation is made based on the mileage limit made in the agreement. The monthly instalments for the new or renewing user is then determined from subtracting the residual value from the car’s retail price.

Is Personal Contract Hire Right For You?

Depending on your circumstances, personal contract hire may be an ideal situation for you. It all really depends on one thing: how you plan to use the car.

If you use the car to go to work and back, pick up your children from school, go shopping, and other routine business, then you can drive around in a reliable, new car. If the car is a prestigious model, it will enhance your business and social image. In addition, you can change it every few years, so you will never be stuck with driving an old car that has begun to have electrical and mechanical problems. If you are fine with not owning the vehicle, then this plan will work very well for you.

Alternatively, if your job requires you to travel a great deal around the country or you like to take vacations that involve long distance driving, then the mileage will be high and this will drop the residual value and raise your monthly payments.

If you believe that personal contract hire suits your lifestyle, you’ll enjoy five major benefits:

1. Since you can choose between a new or used car that is leased at a fixed price, you can live within your budget while meeting all your transportation needs. Moreover, you will not be burdened by interest charges.

2. This type of arrangement is much more cost-effective because the monthly instalments will be much lower than if you were to obtain a personal loan to finance a car.

3. You will not have to worry about expensive automobile expenses due to the rising rate of labour and car costs. Most leases include a maintenance package to cover the car.

4. You will not have to worry about the depreciation that will lower the resale value of the car. After the end of term, you can choose a new car if you like.

5. You can drive around in a better car than if you were to try to buy one. Since luxury cars depreciate at a lower rate, the leasing company is more likely to offer you one.