Personal
Contract Hire is a term more
commonly used in today’s world, but before we get into
the technicalities of what it is, let us understand what it means. Usually, you hear of people applying for a car
loan to buy a car and when their loan is paid off they own the car or have to
make large final payment. However, when it comes to Personal Car Leasing, you only
have ownership of the car for a certain period, which is called the lease
period. During your contract period, you pay a certain amount to the lease company
every month.
When the
contract ends, you do not own the car and you will not be given the option, to
buy the car. You simply return the car to the company and if you want to, sign
a new contract for a newer car.
How does it work?
Personal
Car Leasing is a form of car rental, which is not only extended to businesses
but also to individuals. Once you decide to go for a personal car lease, you will
have to sign a contract that will specify the duration of the lease and also
agree an annual mileage. At the start of your lease, you will need to pay an
initial payment followed by monthly instalments. Of course, if you pay a larger
amount at the beginning, your monthly payment amount will be less.
Your
monthly payment amount is calculated by using certain factors.. The leasing
company will estimate the residual value of the vehicle, which means the value
at the end of the contractual period (which has depreciation considered as
well). This is why the company will agree your mileage at the beginning of your
contract as this does influence the resale price at the end of your contract.
The company
will deduct the estimated residual value from the retail price of the car, and
then you pay the difference in the form of monthly instalments. Once the
contract is over, you return the car to the company as per the conditions
stated.
A little more about the payments
There are
certain components that make up your payment cycle, when you are looking to go
for personal contract hire. To begin with, there’s an initial
payment, which is a non-refundable amount equivalent to either one, three, six
or none monthly payments. When you pay a lump sum amount right in the
beginning, your monthly payments reduce. Other charges, including a one-time
document processing fee, might also be included. Next comes the monthly price,
which is the fixed amount you pay every month until your contract ends.
The annual
mileage is decided at the beginning of the contract. If you exceed the agreed
mileage, you will have to pay a penalty. The penalty amount will be stated in your
agreement. If during your contract you know you are going
to exceed your mileage, it’s always best to call your car leasing company to
see if they can renegotiate your contract.
