If you’re a business in the UK considering leasing a van, one of the most important decisions you’ll face is choosing between Contract Hire and Finance Lease. Both options are widely used for commercial vehicle leasing, but they cater to different business needs, risk appetites, and financial strategies.
Understanding how these leasing options work—and the long-term implications of each—will help you make an informed decision that ensures cost efficiency, operational flexibility, and peace of mind.
In this guide, we explore the features, differences, advantages, and challenges of Contract Hire vs Finance Lease, helping you determine the best solution for your business fleet.
What is Contract Hire?
Contract Hire (Business Contract Hire / BCH) is a long-term van leasing solution that allows businesses to access new vehicles without the responsibility of ownership.
Key features of Contract Hire include:
- Fixed monthly payments: You pay an agreed monthly rental over a set term, usually two to five years, which covers the use of the vehicle.
- Initial rental/deposit: Often equivalent to 3–12 months’ payments, paid at the start of the contract.
- Mileage agreement: You must set an estimated annual mileage limit upfront. Exceeding this may incur additional charges at the end of the lease.
- End-of-term return: At the end of the lease, the vehicle is returned to the finance company. You do not own the vehicle and are not responsible for its resale.
Advantages of Contract Hire:
- Simplicity and convenience: With Contract Hire, the lessor handles the vehicle’s residual value and depreciation.
- Predictable costs: Businesses can plan budgets with certainty, as all payments are fixed.
- Fleet management: Ideal for businesses that want to maintain a modern fleet and regularly update vehicles without dealing with ownership concerns.
Potential considerations:
- No ownership: There is no opportunity to profit from the vehicle’s resale.
- Excess mileage fees: Driving more than the agreed mileage incurs charges.
- Damage charges: You may be liable for any damage beyond normal wear and tear.
What is Finance Lease?
Finance Lease is a business-only leasing solution that offers more control but also transfers some financial risks to the lessee. Like Contract Hire, it involves fixed-term rentals and mileage limits, but the major difference lies in end-of-lease responsibilities.
Key features of Finance Lease include:
- Fixed-term agreement: Typically 2–5 years, with an initial deposit similar to Contract Hire.
- Balloon payment: At the end of the lease, you are responsible for selling the vehicle and using the proceeds to settle the residual value (balloon payment). Some funders offer to manage the sale for a small fee.
- Ownership risk and reward: Any financial gains or losses from the vehicle’s resale are yours.
Advantages of Finance Lease:
- Lower monthly payments: Because a portion of the vehicle’s cost is deferred to the balloon payment.
- Avoid excess charges: You manage the vehicle at the end, so there are no imposed penalties for mileage or minor damage.
- Profit potential: If the vehicle sells for more than the balloon payment, you retain the difference.
- Control over fleet: You can make decisions about timing, sales channels, and maintenance schedules.
Potential challenges:
- Residual value risk: If used vehicle prices fall, you may owe more than the resale value.
- Market fluctuations: Sales prices are influenced by market conditions, model popularity, and mileage.
- Administrative responsibility: Selling the vehicle requires time, effort, and possibly additional costs.
Contract Hire vs Finance Lease: A detailed comparison
| Feature | Contract Hire | Finance Lease |
|---|---|---|
| End-of-Term | Vehicle returned to funder | Vehicle sold by lessee or funder to cover the balloon payment |
| Monthly Payments | Higher (all costs included) | Lower (balloon payment deferred) |
| Ownership Risk | Funder bears depreciation and market fluctuations | Vehicle sold by lessee or funder to cover the balloon payment |
| Excess Mileage / Damage | Potential charges | Avoided; affects resale value only |
| Maintenance & Fleet Management | Easier; less responsibility | Requires oversight; more control |
| Flexibility | Less flexible; fixed contracts | More flexible; control over sale timing and mileage |
Which option is right for your business?
Contract Hire is ideal for:
- Businesses seeking a simple, hassle-free lease with predictable monthly costs.
- Companies with standard mileage usage and regular fleet updates.
- Teams that want to avoid ownership responsibilities, including depreciation, resale, and market fluctuations.
Finance Lease is ideal for:
- Businesses that want more control over vehicle usage and end-of-term options.
- Companies operating vehicles prone to high wear-and-tear, such as tippers, dropsides, and Luton vans.
- Businesses willing to assume residual value risk in exchange for potentially lower monthly payments and a profit opportunity at resale.
- Organisations experiencing rapid growth or variable mileage require more flexible fleet management.
Practical considerations for van leasing
- Mileage accuracy: Carefully estimate annual mileage to avoid charges under Contract Hire or reduce resale risk in Finance Lease.
- Fleet size and management: Larger fleets may benefit from Contract Hire for administrative simplicity, while smaller or specialised fleets might benefit from Finance Lease control.
- Budget planning: Contract Hire provides predictable budgeting, whereas Finance Lease requires consideration of potential market fluctuations.
- Tax considerations: Both options offer business tax benefits, including VAT recovery on lease payments (subject to HMRC rules).
- Maintenance: Factor in service schedules, MOTs, and repairs. Some BCH agreements include maintenance packages, while Finance Lease may leave this responsibility with the lessee.
Not sure what the difference is between a maintained agreement and a manufacturer’s warranty?
Understanding these two types of cover is essential when choosing the right lease for your business. A maintained agreement looks after your vehicle’s routine servicing, tyres, MOTs and wear-and-tear repairs, while a manufacturer’s warranty covers faults caused by defects in materials or workmanship. If you’d like a clear, detailed breakdown of how they compare — and what each one includes — you can read our blog titled: ‘Maintenance vs Warranty: What’s the difference?’.
Conclusion
There is no one-size-fits-all answer when it comes to Contract Hire vs Finance Lease. Both options allow businesses to access brand-new vans without the high upfront costs of purchase. The right choice depends on your risk tolerance, operational needs, budget, and fleet strategy.
At Commercial Vehicle Contracts, our experts can guide you through the leasing process. We help you:
- Assess your business requirements and fleet needs.
- Compare leasing options and identify the most cost-effective solution.
- Choose vehicles suited to your operational and financial goals.
Need professional guidance?
Don’t hesitate. Our team is standing by to answer all your questions and help you find the perfect plan for your needs.
☎️ Call our expert team on 01424 863 456 for friendly, no-obligation advice.
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