Why Do Hidden Fees Exist? The Contract Hire Conundrum - Mercia Fleet Management, Staffordshire

Why Do Hidden Fees Exist?

The Contract Hire conundrum, we already know, we’ve all been there; enticed by a radio advert or an email. Getting excited about the prospect of a brand-new car for a very low cost, only to have our hopes and dreams shattered by the fine print. It’s not that you’re against a fair deal, who is? It’s just the thought of putting a million pounds down, plus your firstborn, against a car isn’t in the spirit of a transparent deal. So, why do hidden fees exist and why do companies do it?

First, this is Largely Consumer Driven

Just like supermarkets advertising items at 99p instead of £1, a low rental has a huge difference in attracting customers. When it’s done right, it also gives the customer huge flexibility. When it’s done wrong though, and the advance payments aren’t clear, it can be frustrating at best, and lose sales at worst. To add insult to injury, some will even charge doc fees, an admin fee to deal with them. Ryanair could learn a thing or two from these companies!

Normally, this type of deal would be represented with advance payments first, then follow up payments after. So, a 36-month agreement would be specified as 9×35. If the payment is £200, that’s £1,800 upfront, followed by 35 payments of £200. It generally works out the same as paying 3 in advance. With 3 in advance, the monthly rental is slightly higher. Sometimes it can be cheaper as you’re lowering the risk for the lease company. If you default, they already have a hefty payment to offset any depreciation and costs.

It’s Useful to Have Money, Especially to Cover Hidden Fees

Let’s say you get some extra cash from selling an older car. You may want to use this before you spend it, while also lowering your monthly payments. For a company, again, if you have the cash but want to keep your regular outgoings slim, it can be very useful.

If you have good credit, funders will be all too happy to give you a quote with fewer payments upfront. Maybe even 1 month, but the monthly cost will increase. So, whether you pay 9 months upfront or just 1, you can expect to pay the same over the full term. It’s just what suits you, the funder, and your financial position.