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There are two main types of contract hire & car leasing. They are private contract hire and business contract hire, which are both types of car leasing options, and are quite similar to each other. With business contract hire, sometimes called business leasing, UK businesses are able to reclaim some of the VAT on rentals, whereas as a private individual taking out a PCH, no VAT can be reclaimed. With both types the individual doesn't own the vehicle but are choosing to lease the car for a fixed period of time, at a fixed cost and a pre-determined mileage.

At the beginning of a lease a refundable deposit has to be paid as well as the first, or in some cases up to the third, month's payment. The price agreed for the lease of the car is used to work out the cost of these payments, and is called the capitalised cost. The lower the cost negotiated, the lower the monthly payments will be.

The following are the benefits of car contract hire for both personal and business users:

• Off balance sheet (not an asset)
• A fixed monthly rental
• Maintenance (servicing) & replacement vehicle can be added to monthly rental
• No disposal costs or depreciation risk
• Can reclaim part or all of the VAT attracted to monthly rentals

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