Personal contract hire (PCH) is a form of car finance deal that works much like a long-term rental. You pay a deposit, make a series of monthly payments and, when the contract term ends, you return the car and start the process again if you want to.
At a time when 90% of new cars are bought through some sort of finance, many people are switching to PCH deals in particular because they’re the simplest way of getting to drive a brand new car. But there are strict mileage limits to adhere to and you don’t have the option to buy the car outright.
In this guide, we’re going to explain everything you need to know about PCH, how it works, the pros cons and how it compares to other forms of finance.
How PCH works
In some ways, PCH – also known as leasing – is much the same as any form of car finance. You pay a deposit (termed initial rental) and make a series of monthly payments for the duration of the contract. However, what you’re actually paying for is different to other finance products such as personal contract purchase (PCP) and hire purchase (HP).
With PCH, you’re essentially just paying for the use of the car, as you would if you were renting. The monthly payments cover the cost of depreciation during the contract period, plus interest. You don’t actually own the car and you can only give it back at the end of the contract – you can’t buy it.
Most PCH deals last between 12 and 48 months, though short-term contracts are available which can be a good way of swapping between lots of cars that you want to try out. There’s always a strict mileage limit; if you breach it, you’ll have to pay a hefty fee for each extra mile. Damage-related fees can be high, as well.
Check whether any PCH deal you’re considering includes things like vehicle excise duty and servicing. Some even include insurance. If not, you’ll have to arrange and pay for them. Servicing plans can often be added as an extra-cost option.
What are the pros of PCH?
PCH deals are usually the most affordable way of getting yourself a brand-new car. That applies to both the monthly payments and the deposit, which is typically equivalent to three to 12 months-worth of payments. Contrast that to a PCP deal which can often require a deposit of many thousands of pounds.
It’s also relatively little hassle to take out a PCH deal. Indeed, many car leasing companies are based entirely on-line and allow you get a car in just a few minutes.
Leasing companies also allow you to tailor the deal to your needs. Pick the car you want, set the deposit you can afford, how long a lease you want and your annual mileage, then add any extras you want like a servicing plan. You’ll then be told what the monthly cost is. If it’s too high, you can tune those variables to bring the cost down.
A PCH deal can be a really convenient way of swapping between different cars, as well. When the contract ends, you simply pick out your next car and pay the deposit.
What are the cons of PCH?
For many people, the main negative to a PCH deal is that you don’t own the car or have the chance to buy it at any point. You can only hand it back to the leasing company at the end of the contract. That means you can’t build any equity in the car as you can on a PCP or HP deal, if the car’s residual value outpaces the outstanding finance.
PCH deals are usually only available to people with good credit scores, as well. Some companies will lease to people who have bad credit, but they often charge much higher monthly payments.
Who benefits from PCH?
If you’re not fussed about owning a car outright and just want to acquire a new one with the minimum of hassle and cost, then PCH deals are a great option. If you have a strong credit score.
How does PCH compare to purchasing a car outright?
Purchasing a car outright requires a big initial cash outlay, or else making a series of monthly payments including interest that ultimately means you end up paying quite a lot more for the car than the sticker price. With a PCH deal, you also have to make monthly payments that include interest but, because you’re essentially just renting the car, those payments are much smaller. A PCH deal can also include things like VED and servicing, removing a layer of hassle and expense from car ownership.
FAQS
What’s the difference between PCH and PCP?
Briefly, this is how a PCP deal works: you choose your car, pay the (often rather large) deposit then make a series of monthly payments over a period that usually lasts 36 to 60 months, depending on the deal. At the end of the contract, you can make the remaining ‘balloon’ payment to take ownership of the car or return it to the finance company. Read more about PCP finance.
PCH deals are usually lower cost (particularly the deposit) and don’t last as long as PCPs. However, you don’t have the option of the buying the car. It must be returned to the leasing company, which will send the car to auction or have a buyer lined up, usually a big used car dealer.
What happens at the end of a PCH agreement?
When a PCH deal ends, you return it to the leasing company, either taking it back to the dealer or having it picked up from home. The car’s condition and mileage will be checked; if it’s not up to standard, excess mileage and damage fees will be applied. There’ll also be a bit of paperwork, including transferring keepership of the car. And that’s it. If you’ve planned ahead and leased another car, you may be able to time its delivery to coincide with handing back the previous one.
Can I end my PCH early?
You can always get out of any finance deal if your personal or financial circumstances change, a situation known as voluntary termination. The question is how much it costs. If you need to end a PCH deal early, contact the leasing company and request an early termination quotation. Exactly how much you’ll have to pay depends on the company’s policies and conditions. You may have to pay the full amount due over the remaining course of the contract, or just some of it.
