Contract Hire Initial Deposit Rentals To Increase

Wednesday, 29. July 2009

Years ago when I first started providing contract hire we would provide terms that would include 3 rentals in advance followed by 21 payments, if a 2 year deal, or 33 payments if a 3 year deal. This meant that there were no payments in the last 2 months. As a result many customers would set aside the money that they would normally pay per month in preparation for the initial rental on the next contract. However, some brokers and lenders realised that if they spread all the payments over the 24 months or 36 months they could reduce the amount of money paid as initial rental as well as reduce the monthly payments. Customers found this more attractive and over a period of time the old profiles of 3+21 and 3+33 have been replaced by 3+23 and 3+35. Well this is all about to change again according to NVR Fleet UK as lenders are looking for more security and to combat what they predict as an increase in contract hire rentals as bad debt and defaults affect interest rates charged to the leasing companies. You see when a contract hire company borrows money to fund its vehicle purchases that are then leased to its customers they purchase on a scheme that still requires them to pay a substantial deposit. As a result it is inevitable that the contract hire companies will expect a higher initial rental from its customers, increasing from 3 payments to 6. For a short period this will affect monthly rentals positively, reducing them, but as the cost of borrowing increases we will see the rates shift back up to the monthly level that they were based on a 3 + profile. There will of course still be some deals and offers out there making them attractive but don’t be surprised to see a shift from 3 payments in advance to 6 in the future as a norm. By Graham Hill