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Difference Between Car Leasing and Contract Hire .

Is there any actual difference between taking a car on lease and a contract hire arrangement? Don’t they essentially mean the same thing where you take a car on lease for a predefined period of time, pay the fixed monthly leasing costs and return the car to the leasing company in due course, before opting for a new car lease?

Well, on the surface of it, both car leasing and contract hire deal with taking a car on lease. But they are not interchangeable terms as there definitely are some essential differences between the two.

The chief differentiation factor is the maintenance charges. While a traditional car leasing arrangement only covers the leasing charges that


are to be paid by the person (or company) taking the car on lease, regular maintenance charges are also factored into a contract hire arrangement. This normally includes all routine servicing, all kinds of mechanical and electrical repairs or replacements, unlimited replacement of tyres, replacement of accessories like bulbs, batteries, exhausts, wiper blades, etc. and other repair costs as required.

Therefore, a contract hire will cover all running costs except just fuel and insurance. But it does not include any kind of damage due to accidents, driver error, vandalism, theft and so on.

What this means is that the vehicle will be maintained by the leasing company itself. Or at the least, the leasing company will be the one bearing the regular servicing, repair and maintenance charges. Therefore, you will not be faced by any unexpected maintenance costs during the period of the lease and have to bear a planned fixed monthly cost for this additional service. This is a major benefit over regular car leasing as in the latter you are obliged to return the car in a good condition; else, steep penalty charges will apply.


Business contract hire is especially favored by VAT registered companies as they cannot just reclaim as much as 50% of the total leasing payments made, but also 100% of the maintenance package costs. Even hire rental tax allowances can be applied. Thus business contract hire proves extremely tax efficient as well. But personal contract hire does not enjoy any tax benefits, so to speak.

But keep in mind that both business and personal contract hire charges are bound to be higher than what you will have to pay if you just take the car on a regular lease.

So, if you are interested in having some top luxury vehicles in your company fleet, an Audi or a mercedes Benz lease is a worthwhile option. But consider a contract hire arrangement along with this as it will take care of the servicing and maintenance costs that are bound to arise during the time when the car is in your fleet. The costs can be easily written off and the car will be returned in a good condition at the end of the Mercedes Benz lease!


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