Few things in life depreciate at the same rate as a new car. It is often said that as soon as you drive a new vehicle from the forecourt, you lose a massive percentage of the car’s value. However, there are ways to counteract this huge loss in asset value; one of which is by bypassing the purchasing of the vehicle to lease the vehicle on 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.

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.

As with every personal contract hire agreement, the lessor will pay for the vehicle road fund license and you, as the lessee, will not be selling the vehicle in the future, so you don’t have to worry about how much it is depreciating. Generally speaking, personal loans from banks, building societies and other financial institutions usually work out to be more expensive than a personal contract hire agreement, so in that sense it is a more financially sound option.

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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