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GUIDE: Car Contract Hire – The Pros and Cons

30 May , 2014  

With everyday bills always increasing these days, buying a car new or even used is an almost impossible choice for most people. Car contract hire provides a helping hand but for some, it can be the wrong decision to make.

Mercedes Benz Approved Used Forecourt - carwitter

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The Pros:

1) Able to afford cars that you thought you couldn’t

If you “buy” at the right time, before new plates come out, you can find yourself with a Mercedes for example for only a couple of hundred pounds a month. A city car for less than £100 a month!

Plus contract hire is usually cheaper compared to buying a new car and keeping it same amount of time. For example, if you buy a new car, as soon as you drive off the forecourt you instantly lose the VAT and you can’t get it back.

2) No deprecation risk

Because drivers do not own the car, there is a sense of relief as there’s no deprecation involved. Therefore no money is lost throughout a contract term.

3) Businesses can claim back VAT

With business contract hires, business can claim 50% on rentals and 100% on the maintenance, if your company is VAT registered. Up to 100% of the monthly rental can be offset against profits.

4) Safety net of manufacturers warranty and everything else with “owning” a new car

Pretty much everything is covered and there are no worries about MOTs, that’s if you don’t have the car longer than 3 years.

5) Brand new car on the drive every few years

Who doesn’t want a brand new car on a regular basis? Let the neighbours be envious. This is usually the most inviting reason for most people about car contract hire.


The Cons:

1) Dude, it’s not my car

First big downfall of car contract hire is that you’re not the registered keeper of the car, the car’s supplier is.

Don’t go thinking you can buy the car at the end of your contract, as most suppliers do not allow this option as they already have their own system of selling cars afterwards.

So if you’re the sort of person that becomes emotionally attached to cars, car contract hire is not for you and it’s probably best you go down another route.

2) Be a clock watcher

All contract hires are based on miles per annum. For example, you take at a contract with 8,000 miles per annum and you go over, you have to either pay for the excess mileage or have your contract looked at and increased to a more suitable mileage but your monthly payments will go up.

3) Be careful!

If you return a car with dents and scratches that weren’t there when new, you will be charged. Of course suppliers do take stone chips and the odd minor scratch into account but if you do have a noticeably damaged car, get it sorted before you give the car back as this will be the cheaper option.

4) Can’t pimp my ride

You can’t modify the car in anyway. You return it back as you received it.

5) Don’t get too bored too easily

If you take out a 3-year contract and after a year you’re bored, you’re basically stuck. The only way to give back a car is to pay yourself out of your contract.

6) Change in circumstance

If you end up losing your job, and can no longer pay the finance the car will be taken back and you will be penalised either financially or through the courts via a CCJ, this will damage your chance of getting credit in the future.


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Car contract hire really is down the individual and a huge amount of consideration is needed as if something isn’t right, expense will be involved.

Also road fund licence is included and is mostly a case of insure, fuel and go. If right, you can find yourself with a new car and not having to pay as much compared to buying outright.

 

Written by – Emma Bothamley

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