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.
In order to work out the monthly payments that the lessee must make; first, the lessor must establish the expected residual value of the vehicle at the end of the agreement. The way this is calculated is by setting an annual mileage limit that the lessee must stick to or face extra fees based on a per-mile infringement. Once the residual value is estimated, the lessor can work out the fixed monthly payments that the lessee needs to make.
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.
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.
To summarize, there are not many drawbacks to a personal contract hire agreement. By making use of a contract hire agreement, you are able to drive cars which would normally be way out of your price range as conveniently, more expensive 'luxury' models have a propensity to depreciate slower which, as previously stated, means lower monthly fees.
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