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A CAR is usually the second most expensive investment most people will make in their life behind only their house. Therefore, it is important to consider carefully all of the financial options available to them when it comes to getting a car.
There is the difficult question of whether to buy a car and own it outright or to contract hire it. Let’s take a look at some important facts that you should keep in mind when you are deciding which of these two options to choose:
1. If you put the identical amount of money down on a contract hire as a car that you finance, the contract hire will usually be lower than financing. This is one of the most attractive benefits of contract hiring because you are able to get more car for your cash. With a contract hire, you are only paying for the depreciation of the car during your contract’s term. However, if you take out a car loan, you will be paying for the car’s complete purchase price. Even though there are some great deals around, Clydesdale Bank, for example offer bank loans starting at 4.6% APR, the interest repayments do add up.
2. For the most part, it is more difficult to get approved for a contract hire than for a car loan. You will need to have solid credit in order to qualify for a contract hire.
3. Contract hires will have an annual mileage cap. This is usually around 10,000 to 20,000 miles. After you pass the threshold of the mileage limit on your contract hire agreement, you will start to be charged for mileage. If you believe that you will exceed the mileage cap, it would be wise to pre-pay for the miles when you sign for the vehicle. It is normally less expensive to pay in advance instead of paying when the contract expires. Obviously, if you buy a car, you can drive the car as much as you want with no limit on mileage.
4. The vast majority of contract hire vehicles are covered under a warranty for the entire length of the agreement. This allows you to save money on potential repairs.
5. Buying a car requires less commitment than a contract hire. If you buy a vehicle, you can do with it what you wish. You can keep it as long as you want, trade it in or sell it. However, if you decide that you want to end your contract hire agreement early, you will be forced to pay an expensive early termination fee.
6. With a contract hire, any customising you do needs to be removed and the vehicle returned to the condition it was in when you signed your agreement. If you purchase a car, you can basically do anything to it that you want, assuming the modifications you make are street legal.
7. A contract hire agreement allows for wear-and-tear that is considered to be reasonable. Your agreement will also list what is considered to be excessive wear-and-tear. There is always the risk of returning your car after a contract hire and being charged a fee because the vehicle has a few too many dents or scratches.
