Contract Hire is a finance agreement between a business and a finance company. The finance company owns the vehicle and you are essentially hiring it for a fixed contract duration, usually between two and five years.
At the outset of a Contract Hire agreement, you select the term and annual mileage. For example, 3 years and 10,000 miles per annum. This will give you a fixed monthly cost, which can help with budgeting and cash flow. If you wish, you can also choose to include maintenance, which will cover you for routine servicing, MOTs and replacement tyres, and allow you to further fix your motoring costs in advance.
At the end of the contract, the finance company will collect the vehicle, appraise its condition and take a mileage reading. If you're over the agreed mileage limit, excess mileage charges will apply. The excess mileage rate is set in advance as a pence per mile cost.
They allow for fair wear and tear, which is any damage which can reasonably be attributed to the vehicle's age and mileage. If the vehicle has sustained damage which exceeds fair wear and tear, the finance company may bill you for their costs in rectifying the damage.