What is Personal Contract Hire?

How to get some of the cheapest monthly payments on a brand new car: Personal Contract Hire

BuyaCar team
Mar 13, 2019

What is Personal Contract Hire?

If you like to change your car regularly for the very latest model, then owning a vehicle may be pointless. Personal Contract Hire (PCH) enables you to rent a new car for up to four years, making monthly payments, and then return it. The arrangement is also known as leasing.

Unlike car finance, you're not charged interest and there's no flexibility at the end, so you can't buy the vehicle. This simplicity means that monthly payments for a brand new car may be lower than with finance.

PCH can be tailored to suit your circumstances: you're generally able to adjust the initial payment that's due before the car is delivered, as well as the length of agreement and mileage limit, which will affect your monthly payments.

It's important to agree an accurate mileage limit to avoid penalty fees for exceeding it. These will also be applied if the car is returned damaged.

PCH also offers peace of mind for diesel owners. If you're concerned that future diesel charges and taxes may affect your car's value, then it won't be your problem with PCH. The leasing company that will lose out if your car loses an unexpected amount of value.

If you are looking for a used car, then PCH is unlikely to be available. Instead, Personal Contract Purchase (PCP) finance offers similarly low repayments but more flexibility at the end of the agreement.

You can easily check to ensure that you're getting the best deal on a new car by comparing quotes with those of PCP finance and calculating the total amount that you would pay.

 

PCP pros

✔  One fixed payment per month
✔  Often cheapest for new car monthly payments
✔  No liability for unexpected drop in value
✔  Maintenance fees can be included

The PCP negatives

Penalties for exceeding mileage limits
No guaranteed option to own the car
Not commonly available for used cars
Can be difficult to end early

 

How Personal Contract Hire 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.

 

Personal Contract Hire on used cars

Personal Contract Hire is not common for used cars. You can take out a lease-type agreement on a second-hand car using PCP finance.

This brings similarly low payments because you only repay part of the car's value. At the end, you can return the car, as with PCH, or buy the car outright by paying off the remaining finance.

 

Getting a cheap Personal Contract Hire deal

Comparing Personal Contract Hire deals is easy because there’s no finance to deal with. You make an initial payment, and then one set monthly instalment for the remainder of the agreement. And you don’t need to consider the car’s future value either. Every quote should inclue a total amount payable under the agreement.

Check if maintenance is included, as this varies from deal to deal.

It’s important to remember that while Personal Contract Hire deals offer some of the most affordable monthly payments, they aren't normally good value in the long run, as you’re left with nothing after the agreement. If you have the savings, it may be cheaper in the long run to buy a car, then sell it when you want or need to.

 

Is there an option to buy after the Personal Contract Hire has finished?

Officially, under the stipulations of the contract, there’s no option to buy. But if you do fall in love with a car, it’s worth asking the lease company if you can extend the contract or even buy the car from them.

There's no guarantee that they will agree, particularly as a one-off sale is likely to require extra effort, but you may be in luck.

 

Can I cancel a Personal Contract Hire agreement early?

Rules and cancellation policies change from agreement to agreement. You can cancel the agreement early but you are likely to be subject to penalty charges, or even a bill for all of the outstanding monthly fees. 

 

What happens if I crash a Personal Contract Hire car?

One of the conditions of Personal Contract Hire insurance is (usually) taking out fully comprehensive insurance. This would cover any repairs.

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

You would be responsible for making up the difference. Guaranteed Asset Protection (GAP) insurance may cover this.

Many insurance policies also come with new car replacement cover. This 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 year of ownership. This would likely clear any settlement with the finance company, negating the need for GAP insurance.

 

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