Car Finance – Personal Contract Hire

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.

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.

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.

There are many advantages to personal contract hire. The primary benefit to most people is the reduced responsibility compared to vehicle finance agreements. Once the lease term has run its course, you are free to hand the keys back to the lessor and walk away. Plus, if previously agreed upon, you can purchase an additional maintenance agreement that will cover all costs for repairs to the vehicle and possibly even breakdown cover if required.

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.

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.

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