End of Contract Charges – Make Sure Your Covered
Why do I need to think about the condition of my vehicle when I return it?
At the end of an agreement for either Contract Hire or Finance Lease, certain conditions must be met when returning the vehicle. The stipulations vary depending on the type of agreement that’s been made. Therefore, it’s vital that you understand what these conditions are from the start, so you can plan for any unforeseen charges or costs that may arise during the length or at the end of the agreement. This is particularly important if you’re after a work vehicle.
We’re often asked here at Capital Fleet Solutions about this issue, so we thought we'd give you some helpful points by unpicking a selection of the key things you need to think about.
So, what are end of contract charges?
It's important to clear up from the start that finance companies will not charge for any vehicle damage that’s considered fair wear and tear – provided the vehicle has been maintained accordingly to the manufacturer’s standards and everything is working correctly. However, you may be charged for any damage that’s not considered fair. So, what is fair wear and tear? This list can vary according to the contract you have, but some regular examples include noticeable dents and scrapes, holes in the floor, missing or broken mirrors. These charges are to cover the cost of rectifying any damage or replacing missing items. A useful guide written by the BVRLA sets out what’s considered fair wear or tear – you can find out more here.
How can you avoid end of contract charges?
It’s advisable to regularly check the condition of your vehicle. Obviously issues arise, and if they do, report any damage to the person responsible for your fleet. This will allow damage to be assessed and rectified as soon as possible.
About three months or so before the end of your vehicle's contract or finance agreement, you should:
- Using good light and with the vehicle clean and dry, walk around the whole vehicle and check the condition of your vehicle. Look at the:
- Bonnet
- Front panels
- Bumpers
- Side panels
- Mirrors
- Wheels, including alloys or hub caps
- Lights, front and back
- Look inside the vehicle (when it’s clean) and check the upholstery for tears, internal mirrors and controls.
- Make sure you get close to enough to what’s being inspected so smaller issues aren’t missed.
- Make sure you refer to the BVRLA wear and tear guide which will give you a fuller breakdown of what to look for.
If you do spot anything missing or broken these can be replaced/repaired, which you can do at your own risk before the vehicle is returned, provided it’s completed to a professional standard, by a qualified person who can give a warranty on the work that can be transferred.
It’s worth noting that the finance company will also record the mileage, to check it against what limit was agreed as part of the finance agreement. Should you exceed the contract mileage you will be charged an excess mileage fee of between 10 – 100 pence per mile + Vat, this charge is advised at inception. If the vehicle travels less than the anticipated contract mileage, there is no refund.
It is worth noting that with a Finance Lease contract there are no mileage restrictions or excess mileage charges. Instead, your anticipated mileage will be used to gauge the value of the balloon payment at the end of the agreement.
When the vehicle is returned, it will be inspected, with a report from the finance company signed by you noting any issues and repairs required.
Leasing a vehicle for work purposes
If you’re looking for a vehicle in this situation, we often recommend going for a Finance Lease product instead of a Contract Hire or Contract Purchase agreement. This is because end of contract conditions are more favourable to anyone looking for a heavy-use vehicle with no mileage restrictions. For example, if you worked in drainage, holes would need to be drilled in the floor for equipment. Regular exposure to water, off-road parking and driving would take place. Most of this would be classed as damage outside of acceptable wear and tear, in a Contract Hire Agreement.
What are the end of contract conditions with Finance Lease?
If you take a Finance Lease product, at the end of the lease you could sell the vehicle to a third party (often this would be back to us), or you could extend the contract by entering into a secondary period. In either circumstance there are no dilapidation costs, and if you sell the vehicle, you are paid a fair market value for it. If the vehicle ends up being worth less than any finance outstanding, a balloon payment for example, we can work with you to sort out covering the difference in a new deal, should you wish to purchase a new vehicle with us.
If you want any more information on the differences between Finance Lease and Contract Hire, see our guide here.
So, that’s an overview for you…we’re here if you want to talk through any of the issues we’ve addressed here, or if you want advice on the finance options, or are returning a vehicle and want some advice on what to check. Just contact us at sales@capitalfleet.co.uk tel:01329 756 373.