What is PCH? Personal Contract Hire explained

PCH agreements explained: also known as a personal lease, this can be the cheapest way of driving a new car

BuyaCar team
Mar 27, 2019

What is PCH?

Personal Contract Hire (PCH) or leasing, is easy to understand: it's a long-term car rental agreement that offers simplicity and low monthly payments for brand new cars. You pay an initial fee and then fixed monthly instalments throughout the lease.

You choose how long it should run - normally between two and four years. At the end, you return the car with nothing more to pay and there's no option to buy the car at the end.

You'll often find that a PCH agreement results in lower monthly payments than finance arrangements, such as Personal Contract Purchase (PCP) or Hire Purchase (HP), so you may be able to afford a more expensive car than you initially thought. It's also easy to switch from one car to another every few years.

However, you will never own the car and you're likely to find that the total amount that you pay to lease a brand new car is higher than if you had financed a similar used car over the same time period.

PCP finance, in particular, is also more flexible, offering relatively low monthly payments and the option to return the car at the end - like a lease - or to buy it for an additional lump sum.

Lease agreements include penalties, which apply if you exceed mileage limits or return the car with excessive wear or damage.


PCH advantages

Simple structure: one fixed payment a month
Low monthly payments
✔ You're not responsible for the car's future value
 Maintenance fees can be included in the agreement

PCH disadvantages

✘ Penalties apply for breaking mileage limits.
No option to own the car at the end
✘ Not normally offered for used cars
✘ Difficult & expensive to end the lease early.



PCH personal car leasing: how it works

1. Initial payment

  • Initial payment is usually the equivalent of 3 to 12 monthly instalments

2. Monthly payments

  • Fixed monthly payments throughout the agreement

3. Return the car

  • Once all payments are made, you return the car.


Used car leasing

PCH is rarely available for used cars but you can still take out a lease-type arrangement for a second-hand model with PCP finance. This allows you to hand your car back at the end - like PCH - but also offers you the option of buying it once your deal is up, or trading it in for a newer car.

Getting a cheap car lease deal

Comparing lease deals is easy because there’s an initial payment, followed by one set monthly instalment for the remainder of the agreement. You’re not borrowing any money, so you don’t need to worry about interest rates, and you don’t need to take into account the car’s future value.

The only things to remember are that you take the initial payment into account and check to see whether maintenance is included.

It’s important to make sure that you stay within the mileage limit and avoid penalties for damage, or any savings could be wiped out.

Although PCH deals often offer the cheapest monthly payments on brand new cars, you are left with nothing at the end of the agreement. If you have the savings, you may prefer to buy a car and then sell it on when you want a different vehicle, without any penalties.


Is there an option to buy after the lease?

There is no official option to do anything except hand the car back. However, many leasing companies offer you the option of extending your PCH agreement for an additional year or longer.

if you do decide that you’d like to keep the car, it is worth asking whether you can buy or refinance it. This may be possible but is never guaranteed.


Can I cancel a lease agreement early?

You can, but the leasing company is likely to impose penalty charges or even bill you for all of the outstanding monthly fees. The rules around cancellation do vary but will be covered in your terms and conditions.


What happens if I crash a leased car?

Taking out fully comprehensive insurance is usually one of the conditions of PCH finance, so this would cover any repairs that are needed.

If the car is written off, then the finance company will ask for a settlement amount to end the agreement. The insurance payout will go towards this, but may not cover the full amount.

In this case, you would have to make up the difference. Guaranteed asset protection (GAP) insurance may cover this difference.

It is worth bearing in mind that new car replacement cover is included with many insurance policies, which will pay for the cost of a brand new replacement if you are the first owner and your vehicle is written off in the first 12 months of ownership. This is likely to clear any settlement to the finance company without the need for GAP insurance.


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