A contract hire agreement can be terminated early but this should be avoided at all costs, because the early termination penalties are very high. If you are thinking of funding a vehicle in this manner, it is worth thinking carefully before committing yourself. If you are uncertain about being tied to a three year term, then consider a two year leasing term; occasionally there are twelve or eighteen month deals available.

To understand why the penalties are high for terminating an agreement you need to take into account that the car leasing company will be in possession of a vehicle that they will have to sell off early at a loss, when all their calculations were based on the residual value at the end of the agreed term; which was probably three years. Also the monthly rental charged was based on you keeping the vehicle for the full term, so it is fairly disruptive to the contract hire company concerned.

In any event, however you acquire a vehicle, it is going to be expensive to dispose of it earlier than planned; with a hire purchase agreement, early termination is subject to penalties and if you purchase a new vehicle outright, without finance, and then need to sell it at an early stage, you will probably find the depreciation in the first few months, quite shocking.

We often experience a corporate client returning a lease car early, in the event of a member of staff leaving or having been made redundant, only to order a similar car six months later when they hire a new employee. In practice it would have probably been better to keep the car and pass it onto the incoming member of staff.

 Although in these circumstances the car would have been idle for six months, it would have still almost certainly been more viable than returning it. Particularly as many companies take short term hire vehicle whilst their contract hire cars are off the road or in the process of being changed; this car could in the meantime have served as pool car.