When money is tight and you need a new vehicle for your business fleet, it is always worthwhile considering contract hire. There are five reasons why it may make sense for your business, but don’t forget to shop around to get the best deal.

Remember that contract hire is like hiring a vehicle for a longer fixed period, at an agreed annual mileage, and you can also build all routine servicing and maintenance in as well.

The 5 reasons to consider this finance method are as follows;

1. Cars will lose money over time - investing your hard earned cash in an asset that will always reduce in value, may not be the most cost effective thing to do. Cash flow is vital for any business so don’t tie up all your cash in a vehicle that’s loses value, the minute you drive it off the dealer’s forecourt.

2. Fixed cost motoring - Contact hire is a fixed cost motoring scheme. All you pay is one monthly rental that covers the finance, depreciation, maintenance and your road fund licence – just hand it back at the end of the contract. All you really need to do is insure it and fuel it.

3. Leasing companies recover VAT on the purchase price - when a vehicle leasing company buys your car, they recover the VAT on the purchase price (and account for VAT on the disposal price). The reduced amount of capital to finance is passed onto you in a lower rental to pay*.

4. More expensive cars to buy, can cost less on contract hire - this is due to the fact that vehicle leasing company resale values (residual values) on vehicles differ and some cars will depreciate more quickly than others. German cars for example, tend to have strong residual values and as a result tend to have lower contract hire rentals, than other comparable cars from other manufacturers.

5. Compare prices and shop around - If you are a small business running a fleet of say three vehicles, leasing or buying a car is a really big decision for you. Make sure you shop around and also compare lease prices on a like for like basis, to ensure you get the right car at the right price for you.

* (Please note there are VAT recovery restrictions on the VAT added to the finance element of the monthly rental – only 50% of the VAT can be recovered. If you are not VAT registered then no VAT can be recovered and you will be paying the rental plus the VAT).