Personal Contract Hire : The Basics Explained
There are not many things in this world that depreciate at a rate as high as a brand new car. It is common knowledge that once a brand new car is purchased, it can lose as much as 30% of its value almost immediately after purchase. There are, however, ways to neutralize the negative effects of depreciation. One of which is by obtaining a vehicle through a personal contract hire agreement.
Though there are a few different types of vehicle finance agreements, and lease agreements, the most popular form of personal vehicle leasing is the personal contract hire agreement. The idea is, when you sign the contract, you will be required to pay a fixed amount every month for control of the vehicle over the course of the stipulated lease period. With a personal contract hire agreement, the lessor will always be the sole owner of the vehicle and the lessee will not have an option to purchase the vehicle at any point.
Over the course of the personal contract hire agreement, the lessee must make fixed monthly payments to the lessor, which are based on the depreciation of the vehicle over the term of the contract. The residual value of the vehicle at the end of the contract determines the monthly payments that the lessee needs to make. To estimate that figure, the lessor must make certain stipulations in the contract that the lessor must adhere to, such as a limited annual mileage and vehicle condition.
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.
With all personal contract hire agreements, your road fund license for the vehicle will be paid for by the lessor, plus you will not have to lose sleep over the depreciation rate of the vehicle as you will not be selling the vehicle at the end of the contract. The monthly costs of personal contract hire agreements are usually much cheaper than personal loans, so it makes for a much more cost effective solution to the problem of vehicle acquisition.
All in all there are very few disadvantages to personal contract hire. With this type of vehicle contract hire, you will have access to cars that are normally out of your price range. More expensive luxury vehicles tend to depreciate at much slower rates than cheaper vehicles and, therefore, make great lease cars and a much more economical choice.
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