Contract hire is a form of operating lease used mainly for vehicles. You pay a fixed monthly rental to use the vehicle for an agreed term and mileage, then return it at the end. The funder owns the vehicle and takes the residual value risk, so you are not exposed to what it is worth on disposal.
Maintenance can often be included in the rental, covering servicing and routine work, which makes monthly costs easier to forecast across a fleet. It is a common choice for businesses running several vehicles that are replaced on a cycle.
The constraints are the flip side of the certainty:
- Mileage is contracted. Going over it usually means an excess mileage charge.
- Vehicles must come back in a condition the funder accepts; damage beyond fair
wear and tear is rechargeable.
- You never own the vehicle and have no equity in it at the end.
- Ending the contract early is generally costly.
Whether contract hire or a purchase-based agreement works out better depends on how long you keep vehicles and how hard you use them. Terms depend on lender assessment; tax treatment should be confirmed with your accountant.